Authored by: Verena Meiser, J.D. — firstname.lastname@example.org, 443-393-7696
Trust Protectors are routinely included in modern trusts as powerful supervisors and enforcers of the Settlor’s intent beyond the Settlor’s lifetime. Since the role of a Trust Protector could be filled by an individual, such as a family member or friend, a professional, such as an attorney, accountant or financial adviser, or a corporate entity, Settlors have to make a choice. What factors should a Settlor consider to name a qualified Trust Protector who will also be willing to accept the responsibilities and potential liabilities?
The selection of a suitable Trust Protector depends largely on the Trust Protector’s primary responsibility and required skill to meet that responsibility. The three most common reasons for including a Trust Protector are (i) to maintain the trust’s compliance with evolving laws and to amend the trust agreement from time to time to ensure that changes in the law do not hinder the implementation of the Settlor’s intent; (ii) to appoint or replace a trustee who fails to further the Settlor’s intent; and (iii) to protect the beneficiaries of t
If keeping a trust agreement updated with regard to changes in the law is most important to the Settlor, then the logical choice of a Trust Protector would be someone who is informed about the legal environment. An individual, such as a family member or friend could always seek a professional’s advice, however, would it make more sense to name the professional directly? The Settlor’s estate planning attorney may be a sensible choice. However, before involving the attorney in a fiduciary role for the trust, the Settlor should consider whether, at some point in the future, the Settlor may like the attorney to be available to handle legal representation of a beneficiary, a trustee or any other party to the trust in a legal proceeding. If the attorney was also serving as Trust Protector, he or she might have a conflict of interest that could prevent the attorney from being available to handle such legal representation.
Many Settlors would like their Trust Protector to have the authority to replace a Trustee who fails to administer the trust in a way that furthers the Settlor’s goals. For example, the Settlor may want to ensure that distributions to beneficiaries result in the best income tax consequences for the trust and the beneficiaries. To effectively monitor the Trustee, the Trust Protector needs the necessary knowledge to evaluate a Trustee. Since a beneficiary or a majority of beneficiaries could also be authorized to replace a trustee, the Settlor needs to consider if there may be other reasons that make the appointment of a Trust Protector preferable. It may be difficult for a beneficiary to remove a trustee, and a Trust Protector could provide back up. For example, in the case of a beneficiary with diminished mental capacity that may not rise to the level required for a court-appointed guardian, a Trust Protector could step in and handle trustee matters.
A lot of considerations go into the selection of the best Trust Protectors. Since the Settlor can anticipate that those individuals and professionals known to the Settlor will have to resign their role as Trust Protectors at some point, the Settlor may wish to name a successor corporate Trust Protector for the future. However, even corporate Trust Protectors may cease to exist, so the trust agreement should include a mechanism for appointing a successor. Part of such a mechanism could be to give a Trust Protector the power to name successors.
Once the Settlor identifies the best suited Trust Protector, the Settlor needs to ask one final question: Will that individual, professional or corporate entity be likely to accept the role? What is the likelihood that the named Trust Protector may be too concerned about exposure to liability and proper liability protection to turn the position down? Addressing such questions will increase the potential that a named Trust Protector will accept an appointment.
There is no doubt that Trust Protectors play very important roles, in particular in trusts that may last for many years. The considerations discussed in this article, are an important part of the Settlor’s consultation with his or her estate planning attorney.