The What and Why of Trust Protectors, Trustees and Trust Advisors
by Elyse Foster
The reasons for creating a trust to hold assets you intend to benefit a family member or other group are numerous. In many cases, it is to protect minors from inheriting assets before they reach the age of majority– 18 in some jurisdictions, 21 in others. Many parents and guardians extend the age to receive trust principal well beyond these ages and then stagger them for additional protection. In other situations, the beneficiary may be incapacitated in some way or otherwise unable to manage assets without assistance.
Trusts can provide protection from creditors and protect from individuals trying to take advantage of the beneficiary. Part of the process of setting up a directed trust for your beneficiaries’ benefit is to name a trustee whose job is to perform a fiduciary duty to safeguard trust assets. A trustee has control over the trust assets. For this and other reasons, the choice of a trustee is a very important decision that should not be taken lightly.
There are multiple types of trustees; you may choose an individual, independent, or bank. Trustees administer assets or property for the benefit of another. The primary duties are to provide trust administration, safeguard the trust estate, oversee the accounting, and oversee investment management.
Rising in popularity in the trust industry is the role of trust protector. This role is layered on top of the trustee and can be an individual or group of individuals that is not the settlor, beneficiary, or trustee. Their role occurs in a directed trust. The trust protector’s role, in essence, is to supervise the trustee and to provide continuity for the settlors wishes in times of questions about distributions, investments, or trustee communications. If there is a trust protector, they are appointed by the settlor. In the past, trust protectors were used most often when there was an offshore account but are now more commonly used in modern trust creation.
The trust protectors’ job is to protect beneficiaries from trustees. There have been situations where a trustee has attempted to make money off trust assets dishonestly. A trust protector can step in and terminate the trustee. A few examples of the duties a trust protector can perform are to approve changes in language of the trust document, remove a trustee, terminate a trust, adjust distributions based on the beneficiaries’ lives, and add or remove beneficiaries. The language of the trust document gives the trust protector authority over what they can and cannot do. This is important language since the powers are broad.
Trustees vs Trust Protectors
Trustees differ from trust protectors because of their fiduciary duty to follow the rules outlined in the trust. A trust protector could have the ability to change a trust document as a trustee may not. This will be outlined in the trust document and will depend on where the situs is. Some states, Wyoming for example, have decanting statutes that allow individuals to modify or amend a trust document. An irrevocable trust will need this, but a revocable trust will not.
A trust advisor makes sure a trust or trust fund is properly executed. It is their job to see the rights of a beneficiary are being looked after and offer advice. They may have certain other legal powers and can oversee the decisions of a trustee, like a trust protector.
While you must have a trustee, you needn’t name a trust advisor or protector. Which you choose is a decision best made with a qualified estate planning attorney. The individual can include your decision in your trust document. As always, we are happy to assist.