Trusts are fundamentally considered as a commitment between two people where the trustee holds the principal’s estate in the trust’s name, for the latter’s benefit. However, this simple definition has become much more elaborate as the concept has changed over time.
However, when you come down to the basics, the whole concept involves a grantor putting faith in the trustee to do right by them. When trusts funded with millions of dollars are concerned, the matter of a trust becomes a little more complicated.
Typically, affluent high rollers and large financial institutions were known to assign a person the designation of trust protector. It is an additional blanket of security for wealth where temptations are too great.
In the United States, the role of a trust protector is definitely more modern and still evolving. In general terms, they provide oversight to a trust that is going to be in effect for a long period. Their role, although not quite crystal clear, is to ensure that the trust is not affected by changes in laws governing estate plans and the principal’s circumstances.
Trust protectors
What are they
As mentioned above, the title of the role is very apt.
Settlers or trust makers choose an independent third-party or an institution to carry out a specific set of duties involving a trust. These include functions that not typically reserved or expected from the trustee, settlor, or the beneficiaries.
One part of a trust protector’s function is to oversee the trustee and take appropriate action if they find any misconduct. This would include terminating the trustee from their role. To find a replacement, they would then refer to the trust’s documents where the settlor has made their instructions regarding the successor.
The power granted to the protector will depend on the dictation of the settlor. Besides what is mentioned above, they can potentially carry out the following responsibilities:
- Facilitate amendments to the trust following changes in the law
- Conflict resolutions among and between trustees and beneficiaries
- Carry out distribution amendments if a beneficiary’s circumstances change
- See through the addition of new beneficiaries
- Veto actions regarding investments
- For dynasty trusts, the powers could include changing the situs or legal jurisdiction of a trust to take care of ambiguities
The powers that a settlor grants a trust protector can be as limited and expansive as they want. The best way to ensure that the protector carries out the settlor’s wishes it being specific while drafting the trust documents. You can sit with your estate planning lawyer to iron out the details and secure your instructions.
Who are they
Typically, any independent third-party can act as a trust protector. The only limitation is that they should not be related to the settlor, the trustee, and any of the beneficiaries mentioned in the trust documents. This is to prevent biases from directing the trust protector’s actions.
Usually, settlors name a specific person in the trust documents to act as the protector. When the trust documents are specific and name a particular person, the settlor should also explain how a successor can be named. There may be an instance where the trust protector passes away or are unable or unwilling to assume their role. The process can help find someone else.
Or they can give the instructions that explain how the trust protector should be designated. In the case a settlor is married, it’s their surviving spouse that is granted the authority to appoint someone.
If even that’s not a possibility, the beneficiaries can help. They can collectively agree on an individual and nominate them to the court so the latter can appoint them.
A role of continued evolution
As an article published by the American Bar Association, the role of trust protectors in estate planning is relatively new. The role is continuously evolving as laws and statutes around the subject are finessed.
Currently, there is still some ambiguity when it comes to defining a trust protector’s exact role. The explanations mentioned above give a glimpse of a generalized assumption of what they do. With the use of trust protectors becoming a lot more domestic, the inconsistencies in the statutes will be resolved.
Does this mean that trust protectors are always necessary? The answer is – not likely. However, large trusts that accumulate huge amounts of wealth may benefit from one. Their oversight can reduce the risk of potential litigations.
If you’re unsure about whether your situation can avail some benefit from a trust protector, talk to your estate planning lawyer today.
