What is a trust protector?
May 10, 2014    Disclosures    POSTED IN  Personal Finance

A trust protector is an individual, committee, or entity named in a trust document that is given power over the trustee and authority to make major changes to the trust document. A trust protector does not manage the day-to-day administration of the trust; that is the job of the trustee. The purpose of a trust protector is to give flexibility to an irrevocable trust, and to have a check and balance against trustee failures and abuse. Typically, a trust protector can amend provisions in the trust document in order to address legal and tax law changes, changes in the circumstances of the beneficiaries, or any other possible future circumstance. A trust protector can also act as a liaison between the trustee and the beneficiaries, helping to resolve any disputes that may arise.

There is no set list of powers that can be given to a trust protector. The grantor must anticipate which powers might be necessary in order to carry out his or her intentions and the objectives of the trust. Those powers (and limitations) should be carefully defined in the trust document (or separate letter, if a trust protector is named after the trust has been created). Additionally, the grantor should provide some guidance to the trust protector regarding what is expected of him or her.

The powers given to a trust protector can be limited or broad. For example, a trust protector can be given the authority to oversee, direct, remove, add, or replace the trustee, or expand or limit the trustee’s powers. A trust protector can also be given the power to add or delete beneficiaries, increase or decrease the interests of any beneficiaries, veto or direct trust distributions, regulate trust investments, change the trust situs or governing law, or even terminate the trust. The grantor, however, should list only those powers that will further the trust’s purpose, and resist an all-inclusive listing, which may cause friction between the trust protector and the trustee, or result in undesirable legal or tax consequences.

As the name implies, a trust protector is meant to be a safety measure, giving the grantor peace of mind. A grantor may want to name a trust protector if he or she:

  • Is concerned that the trustee will fail to exercise his or her duties in a satisfactory manner
  • Would like to withhold certain powers from the trustee
  • Would like a neutral third party to act as moderator between the trustee and the beneficiaries
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