Most of us are familiar with the word, “trustee,” but may not be familiar with the words “trust protector.”
A trust protector is a person the Grantor of a trust appoints to ensure that the trustee of the trust carries out the Grantor’s wishes and intent. Unlike a trustee, a trust protector is not involved with the day to day administration of the trust. However, a trust protector does monitor the actions of the trustee and can make important decisions about the operation of the trust or about the distribution of the trust assets.
When are trust protectors useful?
Educational, Support and Special Needs Trusts: Trust protectors can be useful to assist a trustee in connection with the administration of educational, support and special needs trusts where a trustee’s discretion is more limited. A friend or family member acting as a trust protector is likely to be familiar with the Grantor’s intent and may be able to make better decisions about tough choices about family issues than institutional trustees. A trust protector can also be helpful in making decisions about discretionary distributions from the trust.
No financial experience: When the trustee is not experienced in financial management, the Grantor may want a trust protector to have the power to approve or veto the trustee’s investment decisions.
Poor health and/or advancing age: If the Grantor feels that the trustee may eventually be unable to make good decisions at a later time due to poor health or advancing age, the trust protector could have the power to review and approve the trustee’s accounts.
Incompetency/Violations: In the event a trustee becomes incompetent or violates the terms of the trust, a trust protector having the ability to remove a trustee and appoint a replacement is helpful.
Changes in circumstance: Trust protectors can be helpful if the terms of the trust need to be changed due to changes in circumstances relating to health, disability and financial situations.
Mediation: As a person who is familiar with the Grantor’s wishes, a trust protector can assist with mediating disputes between the trustee and the beneficiary(s) or between the beneficiaries themselves. Having a trust protector is some cases may be a cheaper, faster alternative to resolving these disputes in court.
What are the downsides of having a trust protector?
The appointment of a trust protector can impose additional costs on the trust administration, may conflict with the trustee and could interfere with the efficient management of the trust.
Are trust protectors really necessary?
Sometimes, they are helpful. However, in other cases, appointing a co-trustee or allowing a successor trustee to appoint a subsequent trustee can accomplish the same objective(s). Empowering a special trustee to act under certain circumstances about a particular issue can also be an effective alternative.
If you have any questions regarding trust protectors and whether it would be appropriate to have one in your situation, please feel free to contact our office.