A person who sets up a trust is called a “Grantor” (sometimes this person is also called a Settlor or a Trustor.) The person who manages the trust is called the “Trustee”. A “Trust Protector” (also at times called a “Trust Advisor”) is a person the grantor appoints to ensure that the trustee does what he is supposed to do as set out in the trust, essentially maintaining the integrity of the trust. This person monitors the action of the trustee but is not necessarily involved in the daily actions of the trust. It is a means of achieving checks and balances and providing some oversight to the actions of the trustee.
Once the decision is made to use a trust protector, then the grantor and attorney must decide who should assume this role. A trust protector can be a person acting alone, a group of people, or a legal entity, such as a board or law firm. When utilizing individuals, whether alone or in a group, the grantor can choose specific persons, such as a family member or a trusted friend, an accountant, or an attorney. Provisions should also be made for reimbursement of reasonable expenses incurred by the trust protector.
Some of the tasks that a trust protector can be asked to handle include:
- The power to remove and appoint trustees
- The power to make modifications to the trust in light of changes in the law, particularly tax law
- The power to correct errors in the drafting or modify the trust to preserve the grantor’s intent
- The power to settle disputes between co-trustees
- The power to modify distributions if a beneficiary experiences a significant life change (disability, litigation, etc.)
- The power to veto an action taken by the trustee
Anytime you appoint a person to act in a fiduciary capacity, whether it is as a trustee or as an attorney- in-fact under a Power of attorney, you are giving that person incredible responsibility and tremendous access. History tells us that while many fiduciaries perform this role with absolute care and precision, others find themselves treading in the grey mismanaging assets or worse, actually misappropriating assets. There is an old saying that appointing somebody as a fiduciary is giving them a license to steal from you. A trust protector is one more safeguard.
If a trust protector is to be utilized, the structure of the trust protector and the trust protector’s specific responsibilities should be carefully thought out. Each power to be granted to the trust protector needs to be designed so it is clear who is to initiate the power and exactly what are the trust protector’s powers, duties, and responsibilities. Lastly, each clause needs to be carefully drafted and coordinated with the other provisions of the trust.
Trust Protectors are a valuable tool but should be added with great care and consideration. The goal is to meet the grantor’s intent and not the personal wishes of the trustee or the Trust Protector. Trust Protectors help to provide assurances that the grantor’s intent will be met.