Your Trust Protector should be someone unrelated to you or a beneficiary, not a fiduciary like the trustee. It also should be someone with professional expertise.
The protector oversees the trustee and can veto investments and beneficiary distribution decisions depending on the powers you grant them. In addition, they can remove trustees and resolve disputes among beneficiaries.
Conflicts of Interest
Trust protectors are often appointed to watch over trustees and help resolve conflicts between beneficiaries. This is particularly helpful if the trust maker’s instructions are misunderstood. Trust protectors can also modify the trust in rare cases, but only to fix a problem that arises. This can avoid unnecessary litigation and additional costs and fees.
When a trustee or directing party starts to act in their self-interest, for example, the trust protector can fire them. Initially, this was their only power, but modern trust law allows grantors to give trust protectors more powers. These can include the ability to change trustees; amend or revoke the trust; add or remove beneficiaries; pour assets into another state for tax advantage; and more.
A family member can be appointed as a trust protector, but it is often better to work with a professional, such as an accountant or attorney, for these decisions. An experienced living trust attorney in California is best suited for making decisions about adding or removing beneficiaries, allowing discretionary distributions or selling assets, and can offer more impartial oversight.
A trust protector is a valuable tool for keeping trustees and beneficiaries on track to follow the original trust maker’s intent, significantly when laws change, and the trustee cannot predict how the changes will affect their decisions. Contact us to learn more about including a trust protector in your estate plan.
Recommendations
Trust protectors can be valuable in keeping trustees on track and aligned with the settlor’s intentions. They can also change the trust to comply with new laws or address unexpected situations.
Having the power to resolve deadlocks between co-trustees is one of the essential powers granted by the grantor. This is often referred to as the “tie-break” power. Discretion to veto investment decisions or redirect trust distributions is another standard power assigned to the protector. The governing document may also include the ability to amend administrative provisions and trust terms. These modifications are necessary sometimes because of unforeseen events such as a beneficiary’s bankruptcy, irresponsibility, or drug addiction.
A well-drafted trust instrument may allow a protector to remove and replace trustees. This is a great way to prevent family members from becoming conflicted in their fiduciary duties or from acting as both trustees and beneficiaries of the same trust.
In addition to a thorough knowledge of the trust maker’s intentions, a trustee protector should have the professional time and experience to act on behalf of the beneficiaries in case of a problem. A good trustee protector is someone you can rely on to get the job done without going to court. Your estate planning attorney can help you choose a qualified candidate to serve as your protector.
Mediation
A trust protector can help resolve disputes between beneficiaries or between a beneficiary and the trustee. While a trustee performs administration, investment, and distribution functions, a protector can be given supervisory powers to fundamentally change aspects of the trust — such as adding or removing beneficiaries, allowing discretionary distributions, or selling specific assets — without petitioning a court for approval. Grantors can assign these powers to a professional, such as an attorney, accountant, or family member.
Originally, protectors were designed to keep tabs on the trustee and ensure the trust maker’s intentions were followed after unforeseen changes in law or circumstance. However, their responsibilities can include dispute resolution and other duties.
For example, suppose a disabled beneficiary will move to a state with significantly different laws and public benefits systems. A protector could amend the trust to provide the necessary flexibility so the person doesn’t lose eligibility for government support programs.
A protector can also be appointed to monitor the trustee and their performance — and to have the power to remove and replace a trustee who isn’t performing well. This monitoring role can avoid a situation like the 2018 case where Buzz Aldrin’s children sued his successor trustee for mishandling funds. A protector could have resolved this dispute before it escalated into costly litigation.
Resolving Disputes
Beneficiary disputes can be expensive, disruptive, and stressful. These disputes often arise because beneficiaries disagree on dividing an estate. A trustee can only avoid this kind of dispute if they have complete control over all assets and can distribute them according to a plan that has been clearly defined.
Typically, these conflicts can be resolved outside the courts through mediation or other means. The goal is to find a solution that will satisfy all parties, and the best way to do this is to bring in a neutral third party. This may be a Bronx attorney or someone with specific expertise in estate planning matters.
A Trust Protector can also be granted the power to remove and replace a trustee, even without the consent of the other beneficiaries. Depending on the language of your trust, this can be restricted to destructive behavior such as failing to respond to beneficiaries, not providing acceptable recordkeeping, reporting, or tax filings, or charging excessive fees for services. Generally, this is much easier for a Trust Protector than for the trustees and beneficiaries to agree on removal and seek court approval.
A Trust Protector can also amend the trust if necessary. This may be to ensure that the trust conforms with the Grantor’s Intent, to make changes because circumstances have changed, or because there are errors or omissions in the trust document. It’s much easier and less costly for a Trust Protector to do this than to get the necessary court approval through a lengthy and complicated process.
