Does My Trust Need a Trust Protector?

You’re about to create a trust, and your lawyer asks you about a “trust protector.” Do you need one in your trust? It sounds like a good idea, right? Who wouldn’t want their trust “protected”?

Where does “trust protector” idea come from?

Trust protectors are actually a new(ish) invention. Of course, all things are relative. But estate planning has a 6-century-long history in Anglo-American law, dating back at least to Henry VIII’s “Statute of Wills,” adopted in 1540.

A lot has changed in the intervening centuries, but a lot of our current law developed very shortly after Good King Hal‘s enactment. Even the “new” idea of revocable living trusts dates back to at least 1765 in the United States, when Virginia’s Lieutenant Governor Francis Fauquier signed what might have been the first one.

That’s all another way of saying that the law of wills, intestate succession, and even the development of trusts has a pretty long history without as much year-to-year change as you might expect in some legal fields. So when the concept of a “trust protector” popped up late in the last century (while at least one of the Fleming & Curti, PLC, attorneys was still in law school), it was a bit of a legal bombshell.

Oh, the idea had been around a little bit longer — maybe clear back in the 1960s or so. And a “trust adviser” was a thing even before that. The detailed history, if you are interested, is spelled out in a legal article by our friend and since-retired law professor Lawrence Frolik, whose legal scholarship was always excellent and his writing engaging. And his article is itself now a decade old, so from relatively early in the development of the concept.

What does a trust protector do?

Pardon us. We don’t get enough opportunity to use this classic legal phrase. But “it depends.”

It depends, that is, on what your trust says a trust protector can do. Among the common powers given to trust protectors might be to:

1. Remove a trustee and name a new one.
2. Change beneficiaries, to add later-born children or grandchildren, for example, or to remove a beneficiary who has become troublesome.
3. Extend the term of a beneficiary’s trust interest, to protect them from creditors.
4. Change the provisions of a trust, perhaps (for example) to turn a beneficiary’s interest into a “special needs” trust.
5. Revise the trust’s terms to gain some tax advantage that wasn’t envisioned when the trust was established.
6. Clean up terms that turned out to be based on mistakes or misunderstandings.
7. Change a trust’s “situs” — that is, the state (or country) where the trust is administered and which local law applies.
8. Terminate a trust that is no longer needed.

And we can think of more. The point is, a trust protector can be given a number of roles that seem appropriate in a given trust.

State law might give a trust protector some or all of those powers, or other powers, by default. So simply naming a trust protector might get you some subset of the above powers even if your trust doesn’t specify any.

There’s no particular magic in the title, by the way. If you’d prefer, you can call your trust protector a trust advisor, or trust adviser, or ombudsperson, or advocate. Or maybe you can come up with a new title never used before.

Who can be a trust protector?

Pretty much anyone can be named to the role. Of course, if you name the same person as trustee and trust protector, there’s not much oversight or additional protection from the dual roles. So that’s almost never done.

But maybe you want to name one of your children as trustee, and another as trust protector. Or a professional trustee and a family member as protector. The point is that you can expand the range of total powers, use the trust protector as a check on the trustee, or give the trust protector powers to recommend (or even control) distribution decisions.

But this leads to the obvious problem: as you plan your estate, you might have a hard time coming up with a person to give the trustee’s role to. And then we’re going to ask you who could be the backup trustee in case that person is unavailable. For a lot of our clients, it’s simply a bridge too far to make them come up with a name for a trust protector (and a backup trust protector).

It’s possible to build in the idea of a trust protector, but not name an individual. Your trust could give the trustee, or a beneficiary (or someone else) the power to name a trust protector when the role is needed. That builds in some flexibility but reduces the administrative burden — and the need to come up with candidates for the role from the beginning.

So do you need one?

Let’s put it this way: we include trust protectors in a minority of the trusts we prepare. But there are a few particular use cases that seem to call out for the possibility. A few of the most likely candidates:

1. A special needs trust (or one for a beneficiary with an addiction or emotional disability), especially with a professional trustee (like us) or a more-distant family member as trustee. Or, for that matter, when a sibling is the trustee. All of those are potentially fraught relationships.
2. A trust for the surviving spouse, particularly in second-marriage situations. A trust protector can sometimes reduce the likelihood of disagreements and ease conflicts.
3. A trust for very young beneficiaries who won’t be in any position to monitor the trustee’s decisions for years. For that matter, the same logic applies to trusts for pets.
4. A trust that is intended to last for decades or even generations. It’s pretty hard to imagine what the world will look like in fifty or a hundred years, and a trust protector might turn out to have been a nifty way to protect against unforeseen changes.

When you come to see us about your estate planning, let’s talk about the idea of a trust protector. We enjoy getting all philosophical and historical (witness this week’s newsletter) and we’ll have a fun chat. Then you can decide what you want to do.