TRUST PROTECTORS AND TRUST ADVISORS

What is a trust protector? The terms trust protector and trust advisor are often used interchangeably; this article uses the term trust protector to refer to both.  Bluntly put, a trust protector is a person - other than the settlor or trustee – who holds various trust-related powers over the trustee.  Their function is generally to ensure that the grantor/trustmaker’s intent is carried out.  California has no specific statutes regarding trust protectors, but the concept is widely accepted and regularly implemented.

A trust protector is very distinct from a trustee – s/he does not manage the trust on a day to day basis, nor (generally) deal with the normal administrative functions of the trust.  Instead, the trust protector – whose functions and powers are dictated by the trust itself – usually comes into play when either something has gone wrong or has changed, and a change in the trust or trustee has become necessary to preserve the trust’s purpose.

The trust itself sets forth the powers a trust protector has.  Generally speaking, the two most important functions of a trust protector are the discretion to remove and/or name a trustee, and the ability to reform the trust in light of drafting errors or changes in circumstances or law.  A trust protector may also have the power to direct investments, to terminate the trust, to resolve conflicts among co-trustees, or to change the trust’s situs.

One of the biggest threats to a well drafted trust is the trustee him/herself.  A bad or unscrupulous trustee can do immense damage, no matter how well drafted a trust is and no matter how strong local laws are.  For this reason alone, a trust protector can be a valuable asset.  By “watching the watcher,” so to speak, and added layer of protection is provided to the trust’s beneficiaries.

Similarly, if laws change such that the trust no longer works as intended when created by the trustmaker, a trust protector with some power to modify the trust may obviate the need for protracted and expensive court proceedings. The same is true if where a drafting error comes to light, and which unintentionally defeats the trustmaker’s intent.

While there are many benefits to including provisions for a trust protector, it should be noted that the area of law surrounding trust protectors is not well-settled; importantly, whether a trust protector should, or necessarily does, act in a fiduciary capacity is the subject of ongoing debate.

Whether to have a trust protector, and what powers s/he should have is a case-by-case decision, and should be answered within the context of an overall estate plan, and with the aid of a professional.


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