Trusts are wonderful things. They can provide for the smooth transition of wealth from one generation to the next. They can help your loved ones avoid the need for going to probate court after you die. They can provide your care if you become incapacitated. But sometimes things go wrong. Laws change. Named trustees turn out to be dishonest or irresponsible. Beneficiaries get addictions or lose motivation to work. And sometimes there are simply typos in the trust document. A Trust Protector can fix these situations. Think of a Trust Protector as “Extended Warranty Coverage” for your trust.
Here are some common questions we are asked about Trust Protectors.
What is a Trust Protector?
A trust protector is an independent third party or institution that is given the authority to perform certain duties regarding a trust.
What does a Trust Protector do?
This depends on the trust document. A Trust Protector can be limited to removing and replacing trustees. However, we prefer to give the Trust Protector much broader powers. It is impossible to know what future changes may happen in the law or your family’s circumstances. A Trust Protector allows for flexibility to address these changes.
Can the Protector amend the trust to increase his powers?
In the trusts that we draft, no. Likewise, the Trust Protector can’t make himself or herself a beneficiary.
Why have a Trust Protector?
The purpose of a Trust Protector is to represent your interest (as the creator of a trust) in making specified trust decisions that you are unable to make. The primary function is to exercise judgment on your behalf if you can’t for some reason. For example, if your trustee is stealing money from the trust, you may not personally be able to remove trustee if your trust is (a) irrevocable, (b) you are incapacitated, or (c) you’ve passed away. However, you can ask your Protector to immediately replace the trustee. (The alternative is to start a lengthy court battle. But then while you are waiting months to get to trial, the money could be spent and the trustee could move to another state. We have seen this happen.)
Who should be named as the Protector?
Typically, your Protector will be the attorney who drafted the trust. Why? Because the attorney often knows your wealth planning wishes better than other family members. Plus, the attorney is familiar with the law and what should and should not happen in the management of your trust.
How do I know the Trust Protector won’t abscond with trust?
Because under the terms of a properly drafted trust, this is simply not permitted. Also, if you name an attorney, they risk losing their professional license by doing anything unethical.
Can I remove and replace the Protector?
If this is for your living trust, then yes. Your trust is completely revocable and amendable by you. For an irrevocable trust, the answer is a little more complicated. Talk to your attorney if this is for an irrevocable trust.
Can my beneficiaries remove and replace the Protector?
Yes, this is possible. However, lawyers have different opinions about this. If a beneficiary is allowed to do this, it’s too easy for them to basically “break” the trust get their share right away. This eliminates any asset protection or long-term planning features of a trust. It can also have adverse tax consequences.
The best practice from a legal standpoint is to require a beneficiary to petition the court to remove a Protector and appoint a new one. The purpose is to ensure that no creditor can “pierce” the trust by claiming that the beneficiary has effective control over the trust. Talk to your lawyer about the best way to permit the future removal and replacement of the Trust Protector.
Can I provide for a Trust Protector but not actually appoint someone right now?
Yes … if your trust allows for this. However, what happens if you become incapacitated or die without naming a Trust Protector? It’s usually best to have one named. You (or your trust beneficiaries) can always remove the Protector later if they want.
Don’t Try This On Your Own. Get Professional Help.
You wouldn’t use pliers to pull your own teeth. You’d go see a dentist. Trusts and estate planning is complicated.
If you want your estate plan done right, contact us. We’re here to help.
By Paul Deloughery, Esq.
Disclaimer: The information in this article is general in nature and is not intended to provide legal advice or to create an attorney-client relationship. Your situation is unique.