By Tucker Swiastyn | December 12, 2019
Trust (as a verb)
Trusts are very personal. The key to understanding how important a Trust Protector (or just Protector) can be to your clients is to look past the word ‘trust’ as a noun and focus on ‘trust’ as a verb. Anyone who establishes a trust must trust that any fiduciary, whether it is the trustee, the investment manager, or the special needs advisor, is able to perform their role with the utmost integrity. Unfortunately, this does not always happen.
A trustee’s actions should be in accordance with the provisions of the trust, governing law, and in the best interest of all the beneficiaries. How can clients trust that this will happen? The grantor of the trust can establish a specific role called the Trust Protector. The Trust Protector can act in a fiduciary or non-fiduciary capacity to, among other functions, ensure that all other fiduciaries are performing their duties properly. The Trust Protector is often an individual who is familiar with the family dynamics and the intentions of the grantor of the trust. Contacting one of our Trusted Advisors can help aid you in incorporating the right provisions for a Trust Protector in your client’s trust.
Having a Trust Protector in place to keep an eye on the fiduciaries lends a high degree of comfort to a grantor who is hesitant to hand over responsibility in an often uncertain and costly manner. A Protector can also remove and replace a trustee if necessary.
Why A Trust Protector?
Whether a trust deals with a large sum of money or a small amount of money, it is never a bad idea for your client to add an extra layer of accountability to the trustee in control. The bigger the trust, the better chance there will be issues concerning the integrity of the individual named trustee.
With for which the primary purpose is to accumulate wealth, there are often (not always) real concerns of misconduct. A Trust Protector’s central role is to make sure that the appointed trustee is acting in the best interest of the trust characteristics and beneficiaries involved–protecting the integrity of the trust.
Who Can Serve As Trust Protector?
There are a few limitations that keep anyone from being able to serve as the Trust Protector of your client’s trust. As a third party, the Protector can not be related to the creator of the trust or beneficiaries of the trust. In some cases, the trust will already have a Protector appointed, or contain the process to appoint one. If the creator of the trust is married, the spouse has the power to appoint a Trust Protector.
One of our Trusted Advisors can help you determine what your client needs and what roles their specific Trust Protector should have power over to best serve the grantor.
If a Trust Protector has not been appointed or even discussed in the current trust, they can be nominated by the trust beneficiaries, and the court can appoint that specific person. When creating the document, it is essential to direct your client to specify how the Protector should be replaced if the selected individual is not able to perform the duty.
A Trust Protectors Powers
Your client can grant a Protector with a range of powers. At the very least, the Protector should have the power to replace the existing trustees. Often, this is the furthest the Protector’s powers go, and in many cases, that is all that is needed.
If your client’s trust is experiencing an emergency–the trust cannot complete its stated duties, or there has been a sizeable unexpected loss of funds–only the Protector can step in and correct any issues at hand. In this case, the trustee would have no power. All the power would be in the Trust Protectors’ hands.
When your client is appointing a Trust Protector, it is vital to advise them not to give the Protector “too much” power, or they may be at risk of putting the Protector in the position of co-trustee. Advising clients to simplify the duties as much as possible is key here.
Ideally, a trust should only appoint a Protector with these three powers:
- The power to terminate a fiduciary
- The power to change the trust situs
- The power to add or remove beneficiaries
One of our Trusted Advisors can help you determine through trusted service what would work in the best interest of your clients when discussing a Protector of their trust. You are your client’s Trusted Advisor, and we are your Trusted Advisor.
Contact one of our Trust Consultants now for trusted guidance in trust services.
Trust Consultant Team: