Trust protectors can make changes to a trust that align with your intentions, including removing trustees, adding beneficiaries, and modifying the terms of the Trust. They can also respond to legal and tax changes impacting the confidence trust.
In addition, they can protect inheritances from creditors through a process called “spendthrift protection.” The Protector should be someone you trust and not be related to the Grantor or Trustee.
Monitor the Trustee’s Activities
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A trust protector role is a third party that holds power over a trustee and oversees their management. They can be granted a wide variety of capacities, from amending the terms of a trust (as long as they comply with the Grantor’s intent) to reviewing and approving trust accountings and trustee compensation.
As such, they can add a needed layer of oversight and control. It can help ensure the Trustee acts ethically and follows the Grantor’s instructions. It also helps protect beneficiaries from unforeseen circumstances or tax consequences not considered when the Trust was established.
In addition, they can make it easier to remove or replace a trustee when necessary. This is particularly important when a trustee needs to carry out the Grantor’s instructions or has become ineffective. Normally, this process would have to go through court, but a protector can easily take on this responsibility. They may even be given the power to settle disputes between trustees or amongst beneficiaries. It can save time and money that might otherwise be spent in court.
Monitor the Trustee’s Conduct
For people who want a third party to oversee trustee activities, the role of Trust Protector may be useful. Depending on the powers granted, this person can approve or reject trustee accountings, change trustees, control investment decisions, and even veto the actions of a trustee.
A protector’s duties are typically outlined in the trust agreement and can be complex or simple. The most common powers given to a protector are the power to remove or replace a trustee and the right to review trust accountings and compensation. A protector can also be given the power to revise provisions of a trust in response to changing tax law, family circumstances, and eligibility for public benefits.
People creating an SNT commonly appoint a trusted friend or family member to serve as Protector. Attorneys may also choose to serve as protectors but should carefully consider the nature of their duties and standard of care. Deciding who will act as Protector is a significant decision for anyone creating an irrevocable trust.
Monitor the Trustee’s Decisions
A trust protector’s responsibilities often include monitoring how the Trustee makes decisions and handles the trust assets. For example, if the Trustee is going “rogue” by taking funds from the Trust and giving them to people not named in the Trust (which could violate the terms of your estate plan), your trust protector can step in.
The trust protector may be given a wide range of powers or just very limited ones depending on the decisions made by the trustmaker when the Trust was created. Often, the Protector can remove and replace the Trustee and settle disputes among the trustees or between beneficiaries and trustees.
Your trust attorney can work with you to determine whether a trust protector is right for your comprehensive estate planning goals and, if so, the type of powers they should be granted. A well-written trust protector clause can save beneficiaries from losing their inheritance to creditors, lawsuits, and other problems that might otherwise drain the trust assets. Our estate planning team has the experience to help you make these decisions.
Monitor the Trustee’s Discretionary Decisions
Sometimes, a Trust Protector will be granted the power to amend terms within your Trust. These changes could be made for a variety of reasons. For example, suppose a disabled or special needs beneficiary moves to a new state with different laws and public benefits systems. In that case, the Trust Protector can amend the Trust to ensure it stays compliant.
A third party can also be useful to prevent an ill-advised or corrupt Trustee from “milking” the Trust for fees or even worse. For instance, if one of your heirs/beneficiaries becomes the Trustee after your death and develops a drug problem or harbors a grudge against another, you may find yourself squaring off with that family member in court, which can be expensive for everyone involved. With a Protector in place, that misbehaving Trustee can be removed.
To be effective, a protector should be an independent party with good judgment—which can sometimes be difficult to predict. That’s why we recommend that the Protector be a third party unrelated to or subordinate to the Grantor (who created the Trust). We also suggest that the Protector be someone you trust to do a great job—and that you consider including a backup in case they can’t continue their duties for some reason.
Monitor the Trustee’s Financial Activities
Often, appointing a trust protector can be a good way to hedge against trustee misconduct that could harm beneficiaries. Depending on the powers granted in the trust instrument, the responsibilities of the Protector can be broad or narrowly defined to meet specific needs and objectives.
For example, the Protector can be granted powers to remove or replace a trustee, control investment and distribution decisions, veto the Trustee’s actions, and amend the Trust. Typically, the Protector must be someone who is not a trustee or beneficiary, as there may be tax issues involved with this designation.
Other tasks the Protector may have include making necessary changes because of changing laws, family configurations, and shifting assets (the trust “situs”). Unlike a trustee, the Protector has no fiduciary duty to beneficiaries and can act freely on behalf of the interests of the Trust. However, as with the naming of a trustee, a grantor should consider carefully to whom they entrust this responsibility. It is also important to be careful about granting the Protector broad powers, as this can lead to conflicts of interest and a lack of independence.