In the world of estate planning, nothing is as constant as change. Settlors cannot always foresee changes in the law, or changes in the circumstances of trust beneficiaries. Enter the trust protector.
Initially developed to help monitor the conduct of foreign trustees of asset protection trusts, practitioners increasingly include trust protectors in domestic trusts to deal with issues such as a previously reliable trustee not following the settlor’s intent or properly considering the interests of the beneficiary, or a beneficiary who is not in the best position to supervise the trustee.
A trust protector is usually a person or persons with trustee-like powers, such as the power to:
- Appoint, add, or replace a trustee;
- Consent to, veto, or direct distributions of income or principal;
- Approve trustee accounts;
- Change the trust situs or governing law;
- Remove or add beneficiaries; or
- Amend or terminate the trust.
A trust protector can be particularly useful for a special needs trust, which may need amendment as the beneficiary’s needs change, or as public benefits law changes.
There are some states that have laws on the books that govern trust protectors, but California has not yet enacted a trust protector statute, despite a recent attempt.
As a result, California law is somewhat unclear on a trust protector’s duty of care. Practitioners who wish to add trust protectors to their instruments should be careful to identify the trust protector’s standard of care.
If you are considering going the route of including a trust protector, proceed with caution. A trust protector is not necessarily any less likely than a trustee to abuse his or her powers, and the law remains unclear on a trustee’s liability for following or disregarding a trust protector’s instructions. A trust protector could also complicate and increase the expense of trust administration if, for example, the trust protector and trustee disagree about the appropriate course of action.
In short, use a trust protector only if you can be sure he or she will actually protect the trust.
This material is reproduced from CEB Blog entry, With Great Power Comes Great Responsibility: Do You Need A Trust Protector?, CEB Blog (April 6, 2012 http://blog.ceb.com/2012/04/06/with-great-power-comes-great-responsibility-do-you-need-a-trust-protector/). Copyright 2012 by the Regents of the University of California. Reproduced with permission of Continuing Education of the Bar - California. For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our Web site, CEB.com.