ELITE ADVISOR BEST PRACTICES
The Trust Protector - Part One
The new kid on the trust block
By Alexander Bove
- A protector is a party given powers over a trust, but who is not a trustee.
- In today’s world of estate planning, most trusts become irrevocable eventually. That generally means they can’t be changed without court permission — a time-consuming, public and expensive process.
- Some states have adopted the Uniform Trust Code (UTC), which allows certain changes to be made as long as all the beneficiaries consent.
If the estate planning lawyer you work with has not spoken to you about having a protector for your clients’ trusts, he or she may not be up with the times. The protector is the new kid on the trust block, and it is now a common, valuable and often indispensable tool where trusts are concerned. But just what is it, where did it come from and what part might it play in your estate plan?
READER NOTE: Click here for a review of Alexander Bove’s new book, Trust Protectors: A Practice Manual with Forms.
What is a trust protector?
In simple terms, a protector is a party who is given powers over a trust, but who is not a trustee. In today’s world of estate planning, most trusts at some point become irrevocable, meaning they can’t be changed without court permission, which is typically a time-consuming, public and expensive endeavor. Some states have adopted the Uniform Trust Code (UTC), which allows certain changes to be made as long as all the beneficiaries consent, but depending on the desired change and the relationship among the beneficiaries, unanimous agreement might be a problem. Why would any change be necessary? As flexible as trusts may be, it is simply impossible to anticipate and provide for every conceivable change that could occur in the future, whether in the law or in the beneficiaries’ individual circumstances. Furthermore, because today, many trusts are designed to continue for decades, and even many centuries (as in so-called dynasty trusts), it is almost certain that changes will be warranted. In such cases, the existence of a trust protector can quickly facilitate the desired changes.
Solving unforeseen problems (real-world example)
Picture this, for instance. Maryanne, a widow, established a trust in South Carolina where she and her children lived. On Maryanne’s death, the trust was to continue for the lives of her two children, then for her grandchildren. Maryanne named her brother and a local bank as trustees of the trust. About a year after Maryanne’s death, the two children moved to California with their young children. Dealing with trustees a few thousand miles and three hours’ time difference away turned out to be cumbersome and inconvenient. So the children asked the trustees if they would resign and appoint a California trustee, hoping the trust could be “moved” there. The trustees, who were, of course, receiving a respectable fee for their services, maintained that they could continue to manage the trust efficiently from the east. In addition, they noted that the children had no power to remove them, nor was there a provision to change the “situs” (management home) of the trust. If the children wanted such a change, they would have to take legal action (at their own expense!) and the trustees may well oppose it, using trust funds to support the opposition. If Maryanne or her attorney had thought to include provisions for a trust protector with the simple power to remove and replace the trustees and to change the situs of the trust, the children’s wishes to bring the trust to California could have been carried out with the stroke of the protector’s pen and with minimal legal fees — regardless of any opposition by the trustees.
This is not to say that every trust will need to be changed. I have a favorite expression: “If there are no problems, then there will be no problems.” That is, if everything goes according to plan, then the trust may carry on to its prescribed end without incident. However, if there are more than minor issues and problems, the place for resolution is often the court, with its attendant costs, publicity and delays. Sometimes it is something as seemingly simple as the beneficiaries’ dissatisfaction with the trustee, who (as the beneficiaries see it) may be doing a poor job of managing the trust or not handing out enough money. Or it may be something more complicated, as in the recent Florida case in which an individual adopted his female companion, thereby enabling her to qualify as a beneficiary of a wealthy trust established for the benefit of that individual’s “children” (he was not a beneficiary). The individual adopted his female companion so he would have indirect access to the trust’s millions, should he need it, as he was the defendant in a wrongful death lawsuit. His newly adopted “child” could receive funds which would not be available to his creditors. If the “real” children wanted to dispute the propriety of this act or have the trust prohibit such a result, expensive, public and drawn-out court action would be necessary.
Over the last several years, the idea of the trust protector has rapidly developed and can provide trust creators and their beneficiaries ready recourse to ways of dealing with these and just about any other issue in which a trust is involved without the costs, delays and publicity that accompany court action or beneficiary disputes.
Copyright © 2014 by Alexander A. Bove, Jr., Esq. All rights reserved.