Trust protectors are are intended to be a check on trustees. The settlor, or person who creates the trust and “settles” the property held in the trust, appoints both the trustee and the protector, if there is one.
The widespread appointment of trust protectors is a relatively new development in trust law in the United States. In the past, U.S. citizens most often used protectors when the trusts were situated “offshore,” or held in a bank outside the country.
A trustee is meant to administer the trust for its beneficiaries, with duties including: carrying out the terms of the trust agreement ( a written legal document detailing how trust is administered), investing the assets in the trust, and keeping the beneficiaries informed. The settlor tries to pick a “trustworthy” trustee, however, sometimes the trustee behaves disloyally in some one or another, often by attempting to make money off the trust themselves.
In those situations, a trust protector can be important. The settlor appoints the protector, as well. The protector’s primary duty is to make sure the trustee is doing their job correctly, and remove them if they are not. The protector may also appoint trustees. The trustee might also need replacement if they pass away or otherwise become unable to administer the trust properly.
What are the Benefits of a Trust Protector?
Trust protectors are most commonly appointed to oversee irrevocable trusts. This type of trust, once created, cannot have its terms changed by the person who created it: the settlor. However, a trustee has the power to make sure certain changes in Estate Law (the field of law governing trusts) are reflected in the trust instrument. This is among the numerous duties of a protector.These may vary but some common examples include:
- Removing trustees when necessary, and appointing new ones. Trustees may be removed for mismanagement, or they may need to be replace if they die or become incapacitated in some way.
- Adding or removing beneficiaries. For trusts that carry down through generations, members of the family not yet born at the time of the creation of the trust may need to be added later. Members of later generations, as well as additional assets may be added.
- Appointing their own replacements. A trust protector can often choose their replacement if they know they will be unable to continue as the trust protector.
- Approving changes in the language of the trust to reflect developments in the law (as mentioned above), without the necessity of going to court to amend the trust. This may ensure that the trust receives maximum tax advantages.
- Terminating the trust. In the event that there is a reason to terminate a trust, the protector can make sure that the trust is correctly ended.
- Overseeing distributions from trust to beneficiaries. The trustee who has become disloyal may refuse to make distribute the assets to the beneficiaries. In this case, if the protector is given the power by the trust instrument to make these distributions, they may step in to replace the trustee.
As an additional safety mechanism, a settlor may want to have a protector successor in place, in the event the protector becomes unable to perform their duties.
Do You Need a Trust Protector for Special Needs Planning?
Trusts are also created for people who have special needs, so their guardians can ensure their financial welfare after they (the guardian) dies. For this type of special needs trust, it is wise to appoint a trust protector. As described above, a protector can create additional safeties for the proper financial administration of a trust.
This is not only particularly important in the case of a trust for an individual with disabilities, but the protector of such a trust may carry out additional duties that may be of use. The trust protector may stay apprised of new possibilities in medical treatments for the beneficiary. They can also stay aware of any possibilities for the beneficiary to receive public benefits.
Ultimately, it adds another layer of protection for the recipient of the special needs trust will continue to receive the benefits of the trust even if there are issues with a disloyal trustee. Special needs trusts are created to protect the most vulnerable members of our society, so ensuring that every safety measure is in place can help the creators of the trust rest easy.
Are there Potential Drawbacks to Having a Trust Protector?
As with trustees, there is potential for protectors to fail in their duties. Although they are, by their nature, meant to be neutral third parties who carry out their role impartially, this system does sometimes fail.
A trust protector should be an individual who the settlor trusts in the extreme. It is often recommended that the trust protector’s powers, as written out in the instrument creating the trust, be limited. There is always the possibility that the trust protector will not faithfull protect the trust and was given too much power over the trust and beneficiary.
Should I Consult an Attorney If I Want to Choose a Trust Protector?
When creating a trust, it is prudent to choose a trust protector who is extremely honest, trustworthy and competent. It should be someone unrelated to the settlor. Sometimes an estate planning lawyer who drafted the trust is chosen as the protector. When that lawyer does not wish to serve as protector, they may be able to provide recommendations for other possible candidates.
Other good candidates might be a financial planner, accountant or trust officer of a bank. Above all, the person should be objective, and the settlor should feel safe in relying on them to administer the trust for their beneficiaries fairly.