Trust Protectors: A Love Story
By: George J. Taylor
This article will discuss the concept of a trust protector, whether the trust protector is a fiduciary, powers that may be granted to a trust protector, and finally, conclude by providing the reader with sound legal advice.
The traditional trust has three elements: the settlor, the trustee, and the beneficiary. In recent years, it has become increasingly common for a trust to contain a fourth element: the trust protector. The initial trust protector is appointed by the settlor and given enumerated powers, but is not a trustee. For example, the settlor may give the trust protector the power to modify the trust instrument, the power to remove and replace the trustee, and the power to appoint additional trustees.
Whether the trust protector’s role is fiduciary in nature depends on the powers granted. If the trust protector’s powers are personal—meaning a power that may be exercised at the discretion of the powerholder, and cannot be challenged by the trustee or court unless used to defraud—then it is likely that the trust protector will not be treated as a fiduciary. A simple example of a personal power is the unfettered power to remove a trustee. When the trust protector’s powers are more akin to the powers of a trustee—like the power to direct actions concerning investments and other trust assets—then it is likely that the trust protector will be treated as a fiduciary. If the trust protector is treated as a fiduciary, certain duties of care are owed to the trust’s beneficiaries, with exposure to liability if those duties are breached.
Settlors who are mindful of an uncertain future—a future that will likely not include the settlor because of mortality and the ever-growing duration of trusts—should consider the addition of a trust protector and provide the trust protector the power to amend the trust in response to the applicable law, like changes in the Internal Revenue Code or state income tax law, living standards for beneficiaries, and any other things that may change. Importantly, without a trust protector, the method of changing trustees can be very expensive and contentious, and requires judicial intervention. Consider the following powers that may be given to a trust protector to preserve flexibility for a trust:
- Remove, add, and replace trustees;
- Remove, add, and replace trust protectors;
- Remove or add beneficiaries;
- Approve trust accountings and trustee compensation;
- Amend the administrative trust provisions; and
- Amend the dispositive trust provisions.
The foregoing is not an exhaustive list and is for illustration purposes only. Illegality and contravention of public policy are the limitations for the powers that may be granted to a trust protector. Careful attention should be given to whether the settlor wants the powers to be personal or fiduciary because of the liability associated with a trust protector exercising fiduciary powers, and the supervision that courts have in supervising the exercise of fiduciary duties.
And now for that sound legal advice I promised you—seek the counsel of an attorney well-versed with trust protectors before you make that addition to your trust. Failure to do so could be costly.
George Taylor is a Partner in Brinkley Morgan’s Estate and Trust Litigation and Business Litigation practice groups. His Estate and Trust Litigation practice focuses on helping families and fiduciaries solve legal problems related to fiduciary litigation, will and trust contests, trust accountings, breaches of fiduciary duty, removal of personal representatives (executors) and trustees including surcharge, creditor claims, elective share disputes, litigation between trust protectors, trustees, and trust beneficiaries, will construction, compensation disputes, issues with jointly held assets, reasonable reserve disputes, and homestead litigation. George also represents beneficiaries and fiduciaries in connection with estate and trust administration.