Irrevocable trusts can be a fantastic way to preserve assets for your heirs while avoiding probate, estate tax and provide protection from creditors. However, due to the loss of control associated with irrevocable trusts, we are often asked for ways to address future uncertainties. One option is appointing a trust advisor, also called a trust protector; Properly structured, a trust governed under this role can be modified under certain circumstances.
What is a Trust Protector?
Officially, trust protector is a disinterested person, entity, or committee, usually an attorney, named within a trust, to exercise certain power over the terms of a trust but who is not the trustee. Unlike trustees, are not required in any trust.
What Does a Trust Protector Do?
The trust protector is essentially an advisor to the administration of a trust and to supervise the trustee.
Trust Protector vs Trustee
Most people are familiar with the role of a trustee in trust administration. All trusts are required to have a trustee to oversee the affairs of the trust. However, the authority granted to the trust protector is separate and more restricted than the trustee’s authority.
The trustee is given the general authority to manage the trust, including taking charge of the trust assets, distributing the trust assets to the designated beneficiaries, accounting, paying trust expenses from the trust assets, handling trust business, and similar matters. The powers of a trustee is described in the trust and the state’s trust law.
Unlike a trustee, Florida has no law requiring the Trust Protector be granted particular powers. Instead, this role’s authority is limited to what is detailed in the trust instrument. For instance, the trust instrument may grant the trust protector the power to:
- Modify terms of the trust in response to changes in tax laws, creditor protection laws, or other changes to laws applicable to the trust,
- Change the trust’s state of domicile to a different state to benefit from more favorable laws,
- Monitor the trustee’s actions to protect the beneficiaries,
- Remove or appoint trustees, as in establishing a successor trustee,
- Mediate disputes trust parties,
- Advise the trustee,
- Resolve a impasse between co-trustees,
- Settle any ambiguities that arise in the interpretation of the trust instrument,
- Adjust distributions based on the beneficiaries’ lives, or
- Add or remove beneficiaries.
The power granted to the trust protector may vary from trust to trust.
Fiduciary or Non-Fiduciary Role
If not explicitly stated in the trust instrument that the trust protector is a fiduciary, state trust law will determine fiduciary or non-fiduciary role of the trust protector. Under Florida Law, when not determined by the trust instrument, a trust protector is presumed a fiduciary.
If a trust protector is a fiduciary, there is a duty to act in the best interests of the beneficiaries, which carries a much higher risk of lawsuits by disgruntled beneficiaries or trustees. If proven to be in breach of fiduciary duty, the trust protector may be held liable for any losses to the trust that result from that breach.
Benefits of Using a Trust Protector
Traditionally, many states limited the length of time a trust could exist. The common law “Rule Against Perpetuities” limited trusts to 21 years after the death of an individual who was still alive when the settlor created the trust. Now, many states, including Florida, are much more trust friendly. In 2019, the Florida legislature amended its Statutory Rule Against Perpetuities to permit trusts created after December 31, 2000, to extend to “360 years after its creation.” Fl. Stat. § 689.225(2)(f) (2019).
When a trust may exist for up to 360 years, it’s reasonable to assume that applicable laws may change during that period, including tax law and estate law. The life situations of the trust beneficiaries may change as well. A trust protector can help bring more flexibility to a long-term trust to address these changes.
Types of Trusts that Benefit Most from Trust Protectors
While virtually all trusts could benefit from a trust protector, complex and long-term trusts such as dynasty trusts and generation-skipping trusts benefit the most. Absent an appointed trust protector, irrevocable trusts may only be modified by unanimous agreement of the trust maker and the beneficiaries, court order, or decanting. These alternatives can be complex, costly, and cause delays.
Dynastic and generation-skipping trusts are used for many generations and span for hundreds of years or more. Many family and legislative changes can occur throughout the trust duration. Establishing a trust protector allows for responding to these changes promptly and cost-effectively.
A Florida estate planning attorney can help guide you through the best options for your trust. Choosing a trust protector, however, should not be taken likely. It is important to choose someone who is honest, competent, and trustworthy.
Selecting a Trust Protector
Important qualifications for a potential trust protector are training and experience in trust and tax law and tact in navigating family dynamics. Ideally, a trust creator will select a party outside of the family who has professional experience in the administration of trusts. Doing so provides an experienced party supervising trust administration while avoiding favoritism or animosity among family members.
The role of trust protector can be served by an individual, entity, or committee. Depending on the goal of the trust creator, having multiple people on a committee of varying areas of expertise may prove beneficial. In addition, the trust may also name other individuals or entities to serve as successor trust protectors. The successors would not have any authority to serve unless the initial designated trust protector became unable or unwilling to serve.
The trust protector need not be an attorney, but by law they must be;
- A third party or non-interested party to the trust (ie not the grantor, trustee, or beneficiary)
- A person who is not related to or subordinate to the grantor.
- Someone who is able to perform the functions of a trust protector.
Almost always, the trust protector is an attorney and more often the attorney that drafted the trust instrument.
The Bottom Line
Trust protectors can play an important role in ensuring the longevity of a trust throughout many generations, during both legal and life changes. If you’re considering including this role in your trust and how it can benefit your estate, our estate planning attorneys can guide you through the practical and legal obligations of establishing a trust. Contact Us Today to get started.