The Facts About a Trust Protector
Author: Sara Yen
A Trust Protector is a position with limited powers which is established within the Trust to ensure that the Trust isn’t adversely affected by changes in law, circumstances or actions of the Trustee. When I describe the position to clients, I like to compare the Trust Protector to Batman. When all is going well, there’s no need for his/her services, they simply exist in the background. However when something goes awry with a Trust, the bat signal goes up and the Trust Protector goes into action to remedy the situation.
There are several good reasons to have a Trust Protector. A Trust Protector allows a long-term trust to be more flexible and adapt to legal and situational changes. For example, a Trustee generally cannot revise a trust to accommodate changes in the laws or to correct ‘scrivener’s errors’; a trust protector can be assigned those powers, and more. It’s common for a Trust Protector to be given the power to remove and replace a Trustee. Since some trusts may end up lasting for several decades, it’s important to have a Trust Protector who can adjust provisions in the event that circumstances, beneficiaries, or laws change over time.
Powers of a Trust Protector The powers of the Trust Protector are specifically defined within the Trust. A Trust Protector can be given as few or as many powers as the trust creator (grantor) desires, as long as they don't usurp those of the Trustee. That said, there are certain powers that should always be considered for a Trust Protector:
- Power to Amend Trust Provisions. Some irrevocable trusts begin as Revocable Trusts, becoming irrevocable after the grantor dies, and then continuing for several generations. Generally, Irrevocable Trusts cannot be changed. If the grantor failed to update the trust while it was still Revocable to reflect changes in circumstances or beneficiaries, a trust protector can fix those issues after the trust becomes irrevocable.
- Power to Add, Remove and Replace Trustees. Giving beneficiaries the power to remove or replace the Trustee may defeat the grantor’s intent. Beneficiaries may want to remove a trustee who doesn’t grant their every request. An independent trust protector can be be objective in viewing the trustee’s actions, or inactions, to determine whether the grantor’s intent is being fulfilled.
- Power to Change the Trust to Reflect Statutory Changes. Simply put, laws change… particularly tax codes. Since it is impossible to predict the future, this power is critical to guarantee that the trust will continue for as long as the grantor intended, with minimum tax consequences.
Selecting a Trust Protector Although, technically, anyone can serve as a trust protector, I recommend an independent third party rather than a family member or a beneficiary. A lawyer or accountant can be a good choice, or the court can appoint a representative. There are also companies that provide trust protector services.
Including a trust protector in a trust agreement that will become irrevocable, helps ensure the success of the trust over time. If you have an older trust and are interested in adding a trust protector, or if you’d like to review the trust protector provisions of your current trust, please call my office at 503.675.4385.