Trusts are a popular estate planning tool for various reasons. Among them, a trust, if properly funded, will allow the grantor’s assets to avoid probate, the document itself can remain private, as it is not necessary that a trust be filed with the court after the grantor’s death, it allows a grantor to provide a structure for the trust beneficiaries’ inheritance, and it can allow a grantor to choose whom will be in charge of managing and distributing the trust assets, also known as a trustee, as well as outline a process for choosing successor trustees.
Although a trustee owes a fiduciary duty to the beneficiaries of the trust, and the beneficiaries may enforce this duty through the judicial system, grantors of trusts often fear that should there be a conflict between the trustee and beneficiaries that the only recourse for the beneficiaries is to bring an action against the trustee in Court, often an expensive and time consuming endeavor. The inclusion of a trust protector provision in a trust will often calm such fears.
A trust protector provision may be drafted in such a manner as to empower the trust protector to settle disputes between trustees and beneficiaries. The terms of the trust will dictate the trust protector’s powers. Common powers granted to a trust protector are: the power to remove or replace a trustee; veto a discretionary trust distribution; power to amend the trust to achieve favorable tax status or respond to changes in applicable federal, state or other tax law; and to modify the trust to alter the beneficial interest of a beneficiary.
If you are considering naming a trust protector in your trust document, it is important to discuss with us the specific powers you want to entrust to the trust protector, as well as the identity of the trust protector. Generally, the trust protector should be an independent individual or entity (i.e. has no beneficial interest in the trust, qualified or contingent).
To discuss any issues regarding the use of a trust protector in your trust, please do not hesitate to contact us.