What is a trust protector — *A trust protector can add another layer of protection to your children’s inheritance.*

A trust protector is like a trustee that serves an extremely limited role within the trust agreement.

It’s also possible that the trust protector acts as a non-fiduciary (whereas a trustee is generally held to a fiduciary standard). This means the role of trust protector may not necessarily carry the same legal risk as a trustee when it comes to the trust protector’s decisions (or failure to act).

Generally, you would still want to apply fiduciary standards to a trust protector, but certain persons or companies may not feel comfortable serving as a trust protector without legal assurance that they are not inadvertently sued for actions or failures to act when the trustee is doing sketchy things.

So what does a Trust protector do? And how is a trust protector different from a trustee?

A trustee is kind of like the CEO of a trust. A grantor (creator of the trust) typically gives the trustee all the power he/she needs to get the job done and administer the trust properly. For that reason, the trustee can do most functions by himself or herself.

The trustee also has the ability to delegate and hire other professionals to perform certain roles. For example, think about investment advising, completing tax returns, or hiring attorneys to interpret language of the trust or provide further legal guidance to the trustee or the beneficiaries.

Given the broad responsibility, the trustee is generally responsible for running the whole show so long as he or she is doing so in accordance with the grantor’s instructions.

So where does the trust protector fit in?

The trust protector is really only there for two reasons: flexibility and oversight.

Let’s go through some examples, to make the trustee protector’s role a bit more clear.

Need to replace trustee. Although you would hope the person you chose as trustee would be a good long-term candidate to serve the best interests of yourself and the beneficiaries of your trust, sometimes they don’t work out.

It’s not always a matter of acting in bad faith - sometimes it’s a matter of circumstances that don’t allow the trustee the ability to act in accordance with the trust instructions. Maybe the trustee lacks certain knowledge or traits that leads to mistakes or a failure to identify actions that must be taken proactively (like filing government forms).

Regardless of the cause, if there’s a trust protector in place, then usually the trust protector will be able to quickly remove and replace the trustee if the trust protector feels that the trustee is not the right person for the job.

The instructions for removing and replacing a trustee can vary by trust, but if you have a trust protector in place, then you usually allow the trust protector to remove the trustee at any time for any reason to avoid the trustee using trust assets to fight back against the trust protector removal of the trustee.

Administrative changes to the trust. This is a more boring example, but sometimes the trust is drafted in a way that is either confusing or doesn’t properly align with the grantors intentions.

For example the trust may have been drafted in Massachusetts and covered under Massachusetts law, but after the grantor dies the beneficiaries and/or the trustee may be located in Florida or a state with different tax laws, and the trust protector may need to step in to adjust the trust to change the governing law or something called the trust situs to save money on taxes for the benefit of the beneficiaries.

Or perhaps the trustee powers are ambiguous and a third-party like a bank or investment company are hesitant to act, so the trust protector may be able to amend the trust to clarify the powers of the trust to streamline the trustee’s authority and/or remove legal roadblocks.

In other words, if the trust is drafted a certain way, and it later turns out that there is some administrative provision that is complicating things for either the trustee or the beneficiaries, then the trust protector may step in to protect the grantors intentions by modifying the trust ever so slightly in order to resolve the issue.

And then there are the situations where the trust protector is only relied upon for very specific decision-making.

For example, if there are two or more trustees serving under trust and the trustees cannot reach agreement on something, then they may rely upon the trust protector to act as a tiebreaker.

You can also draft your trust to specifically state that certain assets cannot be purchased or sold without the consent of all the beneficiaries or without the consent of the trust protector.

For example, let’s say that there is a legacy real estate property (e.g., a valuable commercial property or a sentimental vacation home that’s been in the family for generations) then the trust protector might be able to veto or approve such decision to sell based on the grantor's instructions.

So who would serve as the trust protector?

After reading the above scenarios, you might think: Wouldn’t you just make the person you’d choose as the trust protector, the trustee? After all, if you trust the trust protector to remove or replace a trustee, then you probably trust them enough to do the full job.

To answer that question, it’s helpful to understand that there are two categories of trust protectors: professionals and non-professionals.

Professional trust protectors are usually attorneys, CPAs, or perhaps a trust company, that for whatever reason isn’t comfortable or capable of serving as trustee.

Perhaps the professional has limited resources or time to perform the full role, but nonetheless is highly respected and or trusted by the grantor.

In such circumstances, these professional trust protectors may only be comfortable helping the grantor in very specific ways to minimize their personal or professional liability, while still being able to help make sure the grantor’s intentions or wishes are fulfilled.

Non-professional trust protectors are persons who may be a close friend or family member who once again isn’t comfortable serving the full role of a trustee, because of either time restraints or resource restraints or skill restraints, or perhaps even a conflict of interest because of family dynamics, but nonetheless is someone that you would like to be involved with the trust to make sure the trustees are doing the right thing.

Another way to look at it is that professional trust protectors are usually more relied upon to be able to make administrative changes to the trust (i.e., increase flexibility), whereas non-professional trust protectors are usually relied upon to make sure the trustee is doing the right thing for the beneficiaries (i.e., increase oversight).

So do I need a trust protector for my trust?

In an ideal world, everyone would have a trust protector for their trust, but that’s not how the world works.

In practice, trust protectors are generally only used by the wealthy or those with complex irrevocable trusts. It is my hope to one day be able to offer this opportunity to clients (in a professional capacity), but for the time being it’s more of a nice-to-have rather than a need-to-have for your typical family situation.