Trust protectors gaining in popularity but questions remain

Trust protectors are an evolving area of the law.

A Trust protector can be useful for a long-term irrevocable trust and this trust feature is meant to protect the trust from changes in the law and changes in the circumstances of beneficiaries. A trustee runs the day-to-day operations of the trust and invests trust funds in accordance with the existing language of the trust document, whereas a trust protector only acts when circumstances warrant such as when there is a needfor a change to the trust document or a removal of a trustee.

At least that is the theory.

In practice, it is not always clear what legal duties and obligations the trust protector has towards the trustee, beneficiaries, or settlor. The law on trust protectors is still evolving. The rights and obligations of the trust protector can vary and there may not be a clear legal response. For example, a trustee has fiduciary duties towards beneficiaries of the trust, meaning the trustee must always put the benefit of beneficiaries ahead of personal wishes. It is not always clear whether a trust protector has a fiduciary duty towards the beneficiaries. In many jurisdictions, a trust protector has no fiduciary obligations unless specifically provided for in the trust document.

Duties and obligations of a trust protector

A trust protector can have broad significant authority over the governing of the trust, or a few specific duties. These may include:

• Removing a trustee
• Expanding or Limiting trustee powers
• Amending the trust provisions or terminating the trust
• Resolving disputes between the trustee and beneficiaries
• Amending the trust to include additional beneficiaries
• Refusing the particular investment of trust funds
• Denying certain distributions to beneficiaries
• Decanting trust funds to another trust
• Any other powers specifically enumerated in the trust

As noted, trust protectors are most useful for long-term irrevocable trusts. In this way, a trust protector can refuse distribution to a beneficiary who is about to file for divorce, for example, or who is suffering from an addiction. A trust protector can also seek to limit the ability of a trustee to garner fees for the day-to-day management of the trust. A trust protector may also be valuable in deterring litigation by mediating of disputes between a trustee and the beneficiaries.

Litigation arising from trust management

When a trust holds significant assets, human nature can make it difficult to operate the trust according to the wishes of the person who set it up. The existence of a trust protector may curb the temptation for trustees and beneficiaries to act with avarice or greed or cause the parties to act more reasonably.

However, like anything else, there are both positive and negative aspects to a trust protector. And while a trust protector may or may not have fiduciary obligations towards beneficiaries, the trust protector must still act within the scope of his or her powers enumerated in the trust. Whether a trust protector ultimately helps in the administration of the trust can vary widely according to circumstances and the jurisdiction under which the trust is set up.

At Aceto, Bonner & Cole PC, our attorneys have significant experience in trust litigation and other aspects of estate administration dispute resolution. Contact our office to discuss your situation and legal options moving forward.

Keywords: Trust protector, trustee, fiduciary duties, trust management, Aceto, Bonner & Cole PC.