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Financial Planning > Trusts and Estates > Trust Planning

Guidelines to follow when considering a trust protector

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For a while trust protectors were the hottest thing in estate planning. This simple provision offered a buffer between the estate and the trustee, helping to keep assets out of court proceedings and making sure the trustee follows the wishes of the trust grantor.

The powers of a trust protector can vary, depending on how the trust is written, but they generally include the power to make administrative changes to the trust, including the power to remove the trustee. A trust can be written with the proviso that the protector be appointed at some later date; he or she doesn’t have to be named when the trust is drafted.

Ten years ago, nearly every trust seemed to have a trust protector. But there was a backlash before long, spearheaded by a 2011 law journal article by Alexander Bove titled “The Case Against the Trust Protector.” Subsequently, trust protectors have fallen a bit out of fashion.

As is often the case with these controversies, the truth lies somewhere in the middle. Many trustholders would indeed benefit by establishing a trust protector, but many others are better off without one. Here are some guidelines to follow when your clients ask if a trust protector is suitable for them:

The grantor doesn’t have complete confidence in a beneficiary or the trustee.

It can be difficult for a trustee to remove a beneficiary from the trust if that person turns out to be a criminal or troublemaker. That would require a decision from a court and most likely much time and expense. But a trust protector can be empowered to make those decisions alone.

The same is true of a trustee who is not handling the assets appropriately. This can be a bigger problem, since the trustee has responsibility for managing all assets of the trust, for all beneficiaries. If the trustee’s behavior warrants removal, the protector can be entitled to replace that person. The grantor wants to protect a family business.

Many trusts are set up to perpetuate a family business, but oftentimes, the next generation can decide that it doesn’t want to continue to be a part of it. A trust protector can be instructed to prevent the business from being sold to people outside the family.

The client wants flexibility in the trust.

A trust protector can relocate the trust to a different state if the beneficiaries’ circumstances warrant such a move. He or she can do this even if the protector discovers that another state has more trust-friendly laws that might benefit the beneficiaries.

The client wants an independent hand overseeing the trust.

A trust protector can make decisions about the trust free from the threat of litigation. A trustee has a fiduciary obligation to the beneficiaries, who are entitled to bring legal proceedings against that person if they feel it necessary. The trust protector has no such concern.

At least that was the thinking for a long time. Bove pointed out in his anti-protector article that, in the future, a court may hold a protector to that same fiduciary duty.

That’s the first reason why a client may not want to have a trust protector. As Bove notes, there isn’t any settled law that would keep the protector from litigation, even if the language of the trust exempts the protector from such obligations. If the client is hoping to install someone to administer the trust above the reach of the beneficiaries, a protector might not be worthwhile.

Other reasons why a trust protector might not make sense:

They’re not legally recognized in all states.

Many states have neither adopted the Uniform Trust Code nor enacted their own laws establishing the legal status of trust protectors. In most cases, that wouldn’t inhibit trust protectors from carrying out their instructed duties, but the clients should understand that they may not have the full weight of their state’s laws behind them. 

There are other options.

There are ways apart from using a trust protector to ensure that a reliable and trusted person is making decisions regarding the trust. The settlor can always appoint a family member or close confidante to serve as trustee, as well as a trust advisor as well to assist the trustee. 

It’s also possible to appoint more than one trustee, if the client doesn’t believe that a single person is capable of executing all aspects of the trust.


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