What is a Trust?

A Trust is a legal entity involving three roles: The Grantor or “Trustor”, the Trustee, and the Beneficiary. The Grantor (the creator of the trust) will give the Trustee the right to hold and manage property for the benefit of one or multiple Beneficiaries. Trusts are useful in estate planning to save time and costs by avoiding the traditional probate system. They also keep matters confidential as they are private arraignments, as opposed to probate proceedings which are on public display. They are a useful tool to protect money from creditors and lawsuits, as property put into an irrevocable trust is no longer deemed to be the property of the Grantor. Trusts are flexible in how they can be structured to fulfill the Grantor’s wishes, by determining exactly how and when a person’s assets are to be distributed, whether they are still living or upon their death.

What is a Trust Protector?

A Trust Protector introduces another player into the ecosystem of a Trust. It is a person or entity appointed to safeguard the intentions of a Grantor. They are not a Trustee, but still have powers over the trust. They establish another layer of flexibility to the already flexible concept of a Trust.

Where does the concept come from?

Before there was a Trust Protector, there was a “Trust Advisor”, who had the power to control a Trustee in how they exercised their powers. They could make a Trustee do whatever they wanted and were held to a fiduciary standard. In 1990, the concept morphed and then expanded into what it is today. Offshore Trusts were used to protect a Grantor’s assets from tort liability, and the modern-day Trust Protector concept was developed because Grantors were concerned about appointing a Trustee in a foreign country to hold the Grantor’s wealth. They needed someone to oversee and protect the intentions of the Trust to make sure their wishes were carried out. Later on, attorneys found the benefits of this offshore strategy to have the same effects domestically, especially with irrevocable trusts.

Irrevocable v. Revocable Trusts

A revocable trust (or a “living trust”) is set up while the Grantor is still alive and can be amended during the Grantor’s lifetime by the Grantor. They are a flexible option that allows for changes to be made regularly by the Grantor until their death. Upon the death of the Grantor of a revocable trust, the Trust becomes irrevocable. A Trust Protector can be most useful for a revocable trust after it becomes irrevocable, but until then, it already offers a good amount of flexibility to make changes during the Grantor’s life. A Grantor can also make an irrevocable trust to begin with, where changes can only be made through a “decanting” process that involves a complicated procedure of moving all the assets from the irrevocable trust into a new shell.

This can be a long, drawn-out ordeal depending on the jurisdiction, but having a Trust Protector can come in handy to help expedite the process.

What are some more advantages of having a Trust Protector?

1. Flexibility – Some clients will express concern over the Trust Protector clause due to nervousness over the idea that a Trust Protector may have too much power over the Trust. My advice to ease those nerves would be that the Trust Protector’s power can be implemented to be as broad or as narrow as the Grantor wishes. Making it so the Grantor can walk away comfortable with the scope of power given to the Trust Protector. Another aspect of its flexibility is that they can make amendments to the Trust to keep up with changes in the law, mistakes in the document, and or changes in the Beneficiary’s needs.
2. Taxes – The Trust Protector can modify or amend the Trust to achieve a favorable tax status or to keep up with ever-changing federal and state tax laws. It would be beneficial to have a Trust Protector who is well-versed in the tax code, to better maneuver and keep up with these changes. This will enhance the full benefit of the Trust.
3. Efficiency – The Trust Protector has the power to remove and replace Trustees on command. If a Trustee is absent, refuses to carry out the intent of the Trust, or decides they do not want to be a Trustee anymore, the Trust Protector can swiftly remove them without delay. This comes in handy when time is of the essence and a Trustee refuses to act in the best interest of the Beneficiaries. The process of removing or replacing a Trustee must normally go through the court system and can take up to a whole year, whereas a Trust Protector can remove a Trustee in a day. Trust Protectors are not allowed to appoint themselves as Trustees, which helps avoid any corruption of the Trust at the hands of the Trust Protector.
4. Checks and Balances – Sometimes Trustees do not have great judgments on investments or decisions regarding Trust assets. Having the oversight of a responsible Trust Protector is beneficial to give risky investments or decisions a second look.

Unlike an irrevocable trust, life is not as set in stone and is naturally ever-changing in circumstance. We have found that the Trust Protector tool has been extremely useful to help a Trust keep up with whatever changes life may present.

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