Do You Need a Trust Protector?

Trusts have been a powerful, yet evolving, estate planning tool for a long time. As trusts have changed, the need for extra protection and a way to modify trusts became apparent. Trust protectors, sometimes also known as Trust Advisors, may meet both needs. Just as it’s important to understand the type of trust that is appropriate for you, it’s also critical to make sure you have the right people working on it.

Trust Basics.

The typical trust consists of the following:

• A settlor, also known as a grantor or trust maker, who establishes the trust, then funds it;
• A trustee whose job is to manage the trust assets and make distributions;
• Trust assets (property that the settlor has transferred to fund the trust); and
• At least one beneficiary (other than the settlor).

Trusts are established for different purposes with different terms. Others who have a role in the trust include trust advisors, trust directors, and directed trustees. Sometimes one person may serve in more than one role.

Occasionally, a trustee behaves in an untrustworthy way, possibly by:

• Charging for excessive or unnecessary fees.
• Creating or encouraging disputes to further increase trustee fees.
• Making inappropriate referrals between trustees and investment companies.
• And, rarely, embezzling funds.

Trust Protection.

While trusts may be protected by prevailing law, further protection is sometimes warranted.

The trust document that establishes the trust may name a specific trust protector. Alternatively, the terms may set out the procedures for the beneficiaries or a court to appoint a trust protector. A trust protector should not be related to the settlor, the other trustees, or the beneficiaries. In other words, the trust protector must be an independent third party.

A trust document often dictates the trust protector’s duties and responsibilities, which may be broad or strictly limited. Generally, the trust protector may be authorized to:

• Modify an irrevocable trust that no longer works;
• Replace the current trustees;
• Settle disputes arising among the other parties related to the trust;
• Alter trust provisions to comply with current law; and
• Terminate trusts that are no longer necessary.

Learn More About Trust Protectors.

Whether you have a trust now or may consider establishing one, it’s important to know how to protect it.