A protector of a trust (also known as a trust protector) is a person that the grantor names in a trust document. That person’s duty is to oversee and protect a trust from mismanagement by the trustee. They have the power to remove or replace trustees or other fiduciaries if they act improperly. They can even modify the terms of the trust to suit changes in life circumstances.
Understand What a Protector of a Trust Is.
A trust protector is a person appointed by the grantor to oversee the implementation of a trust. The trust protector’s role is to ensure that the trustee and other fiduciaries carry out their duties according to the terms of the trust. They can remove or replace trustees, beneficiaries, and other fiduciaries if they don’t act in accordance with their powers. Depending on the terms of the trust, they may be able to modify the terms of a trust as life circumstances change.
Be Aware of their Powers.
A trust protector’s powers are set forth in the trust document. There may also be state law that applies. The trust will often allow them to make necessary changes to the trust, including beneficiaries, modifications of distributions, additions or deletions of assets and other matters that impact the administration of the trust. They may also have the power to remove and appoint trustees. The trust may allow them to examine accounts held by trustees and make sure that the fiduciaries are working within the terms of the original trust document. Lastly, they may be allowed to help guide investment strategies regarding assets within a trust.
The Role of a Protector of a Trust in Risk Mitigation.
The role of a trust protector is extremely important when it comes to risk mitigation. Their primary loyalty is to the grantor of the trust. If the grantor initially named a trust protector in the trust, then those two people most likely spoke about the grantor’s intentions and wishes for the trust.
They are responsible for making sure that the best interests of the primary beneficiary are being looked out for. They can also act as a safeguard against actions that could be detrimental to an estate plan by monitoring trustees’ behavior and rejecting any changes that go outside or break the terms of the trust document. In doing so, they ensure that a trust is being managed properly and that trust beneficiaries receive their due share as the grantor intended.
Identify Their Legal and Financial Responsibilities.
It’s essential to identify the legal and financial responsibilities of a trust protector. Generally, they are responsible for monitoring trustee performance, looking out for potential fiduciary abuse, and making sure that changes to the trust document are reasonable. They should also have knowledge of the tax laws applicable to trusts and can provide advice if any action taken by trustees is not in line with those laws. Finally, when needed, they have the power to appoint or remove trustees.
Read more about Trust Protectors HERE.
Determine Whether You Need to Appoint an Independent Trust Protector.
Before appointing a trust protector, it is important to understand if they are necessary. Many trusts do not require one. However, we have found that it is always better to have the position and not need it. Your attorney can write the most detailed trust document, but you won’t know if your named trustee is honest until they are put in that position. And that normally means that you are incapacitated or dead. It really makes sense to allow someone else to step in and replace that trustee quickly in that situation. (Otherwise, it probably requires your other family members to go through a long and expensive court battle.)
Having a trust protector definitely makes sense in these situations:
Here are two situations when a trust protector can provide valuable protection and oversight.
- If you have a larger or more complex financial situation.
- Your beneficiaries don’t all get along.
Do You Have Further Questions? We Can Help.
If you have any questions about trusts or estate planning, give us a call at 602-443-4888. We’re here to help.