Should You Name a Trust Protector?

Until recent years, the concept of a “trust protector” was typically found only in domestic and offshore asset protection trusts. However, since trusts are becoming more common as the “go to” estate planning tool, the trust protector concept is making its way into even the least complex of estate plans.

In a trust, whether revocable or irrevocable, you have the usual roles:

• The trust maker (sometimes called a grantor or settlor) is the creator of the trust.
• The trustee is in charge of following the instructions set forth in the trust.
• The best job belongs to the beneficiaries, because they receive the proceeds from the trust.

Trusts provide control, privacy, protection and are a great primary planning tool for most families. But what happens when, after death or after an irrevocable trust is set up, something doesn’t go quite as planned?

What Is a Trust Protector?

If you have a trust, among the things you want your trustee and beneficiaries to avoid is having to go to court to “fix” your trust in order to comply with your intentions or to accommodate a change in the law. That’s where a trust protector can become valuable.

To keep expenses down and keep your trust out of court, you can name and empower a trust protector to solve or adjust the trust based on the following circumstances:

• Remove and replace trustees. You can draft your trust so that the trust protector either can or cannot remove family members as trustees. It depends on what powers you want to provide or restrict to the trust protector. This is a key issue that needs to be discussed with your estate planning attorney.
• Remove and replace a corporate trustee. At the request of a beneficiary, the trust protector could terminate a non-family member, such as a bank or a trust company.
• Allow the trust to be amended. As was mentioned earlier, to comply with changes in the law, a trust protector could make changes so that the trust and its beneficiaries do not incur the time and expense of asking a judge to fix the trust.
• Resolve disputes between co-trustees who disagree. For example, if two siblings who are equal trustees cannot agree on an issue, the trust protector can resolve the tie.
• Resolve disagreements between beneficiaries and trustees. In certain cases, the trust protector may step in and resolve the dispute.
• Change distributions based on circumstances that may have changed in the lives of the beneficiaries.
• Allow new beneficiaries to be added if there are additional descendants to the trust.

Overall, the trust protector provides an additional safety net to make sure your wishes in creating the trust are fulfilled. Although you can make any changes necessary to your trust while you are alive and well, the trust becomes irrevocable when you pass away or if you become mentally incapacitated. For that reason, if you choose to name a trust protector, you should do so when you sign your trust agreement.

Who Can Serve as a Trust Protector?

Generally, anyone can be appointed as a trust protector. The trust protector is usually designated as a non-fiduciary position, which limits his or her liability.

In most cases, a trust protector can be an individual, an institution (such as a bank), or even a simple corporation or LLC. It is common for the family lawyer or accountant to be selected. If you do not want to name a trust protector but want to give your beneficiaries that option, you can include in your trust a provision that empowers your beneficiaries to unanimously name a trust protector.

The good news is that there is no downside to naming a trust protector; it is just an extra layer of protection in making sure that your trust does what you intend it to do.

Adapted from the Daily Plan-It newsletter