Reasons to Use a Trust Protector
A trust protector (not to be confused with a trustee) is an individual selected by the settlor of a trust to represent the settlor’s interests in making trust decisions that the settlor is unable to make due to death or incapacity. This guide gives reasons why using a trust protector may be useful.
Adapt a Trust to Unforeseen CircumstancesTrust protectors may be used to adapt the provisions of the trust to unforeseen circumstances. Changes in tax or state laws may occur, an unforeseen family situation may arise, or a beneficiary's circumstances may change. In these situations, and others that the settlor could not have foreseen, the trust protector is in a position to make decisions that lend authority to the settlor's intent and adapt the trust to the issues at hand.
The use of a protector in these situations is often preferable to judicial modification of the trust, as such proceedings can be expensive, which will unnecessarily deplete trust resources. Additionally, if the trust is designed to be perpetual, the alternative of making the trust revocable to deal with unforeseen issues is not an option.
Another alternative to a protector would be to give the beneficiaries the right to modify the trust's provisions themselves. However, there exists the risk of beneficiaries acting in self-interest and frustrating the settlor's wishes. Furthermore, giving beneficiaries this power to modify might be construed as creating in the beneficiary a general power of appointment, leading to unfortunate tax consequences. Therefore, the use of a disinterested trust protector offers an attractive alternative, providing a person or entity whose primary function is to exercise independent judgment on behalf of the settlor.
Monitor a Trustee's DecisionsA trust protector may also act as a monitor to the chosen trustee's behavior. Beneficiaries are often not a practical alternative in these situations, as they commonly lack the expertise to detect breaches of fiduciary duties. As was cynically stated by Professor Stewart Sterk, "The assumption of rational, educated beneficiaries is a heroic one." Additionally, beneficiaries may be dependent on the trustee or have a close personal relationship, especially in cases where a family member or friend holds the position, and this may make them reluctant to take action to discipline the trustee. These concerns are less likely to arise in the case of a professional trustee. Either way, the use of a trust protector eliminates these concerns and effectively polices the trustee.
Preserve the Settlor's Original IntentA protector also adds flexibility to long term trusts and increases the settlor's ability to control the trustee's behavior long after the settlor has died or become unable to direct the trustee due to incapacity.
Act as Mediator Between the Trustee and BeneficiariesFinally, if the relationship between the trustee and beneficiaries breaks down, the protector can act as a liaison between the parties, communicating the needs of the beneficiary to the trustee and communicating to the beneficiaries the rationale behind the trustee's decisions.