Why Trust Protectors are the Wave of the Future

Why Trust Protectors are the Wave of the Future

 

The use of Trust Protectors began in offshore trusts as a means to safeguard a trust Grantor’s interest and planning intent. Today, Trust Protectors are more commonly used in irrevocable trusts in the US and even in some cases in revocable trusts.

A Trust Protector is a third-party independent person or entity (not related or subordinate to any Grantor or beneficiary) who is vested with certain powers in the trust document to provide planning flexibility to react to later unforeseen circumstances that occur. Some typical Trust Protector powers are the power to remove and replace a Trustee, the power to appoint a Trustee, the power to make certain tax elections, the power to grant a general power of appointment, the power to amend the non-dispositive provisions of the trust, the power to move the trust to a new jurisdiction, and the power to decant the trust to a new trust. This list is not exhaustive but gives a few examples of some common Trust Protector powers that can be included in just about any trust.

The reason that including Trust Protector powers is becoming more popular is because of the flexibility either during the Grantor’s life (but during incapacity) or after the death of the original Grantor that the powers provide. In this world of everchanging laws and tax code, sometimes having more flexibility is key. There also could be a change in circumstance for a beneficiary down the road (for example, a beneficiary becomes incapacitated or becomes a special needs person). The breadth of the Trust Protector's powers vary depending on the objectives of the Grantor, but the Trust Protector's purpose remains the same: to ensure that the Grantor’s interests are protected and planning intent is carried out, even in a changing the landscape.

As the use of Trust Protectors has evolved in estate planning, several important issues have arisen concerning Trust Protector provisions. Specifically, there has been much discussion among practitioners about whether the Trust Protector should serve in a fiduciary or a non-fiduciary capacity, how broad the Trust Protectors power should be, and how a Trust Protector should be named, removed and replaced.

The ability of the Trust Protector to amend the trust can also become particularly important later on down the road after the death of the original Grantor when circumstances have changed. For example, in a Retirement Protector Trust, if the tax law surrounding retirement accounts changes, the Trust Protector could amend the tax provisions of the trust. Or in a situation where one of the beneficiaries is serving as a Trustee and has a threat of a lawsuit or divorce on the horizon, the Trust Protector can remove and replace that Trustee with an independent Trustee to provide better creditor protection for the beneficiary.

We will be discussing Trust Protectors in greater detail at our upcoming 10th annual Trusts & Estates Symposium on May 17th at the Lomas Santa Fe Country Club. https://www.geigerlawoffice.com/library/events.cfm. Our expert attorney speaker on the topic will be Matthew McClintock. If you would like to join us to learn more about Trust Protectors and the other leading edge topics we have in store, contact Lisa Logee at (760) 440-2220 or email her at [email protected]


 
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