Trust protector provisions are a great way to ensure that your trusts will meet the goals you outlined in them. They can provide flexibility for beneficiaries as situations change and new opportunities arise.
A protector can be granted many powers, including removing trustees and changing the terms of the trust. We recommend you speak to a qualified estate planning attorney about adding a protector to your irrevocable trusts.
Power to Amend
In addition to the power to monitor trustees and the ability to remove them (if necessary), a protector can also be granted powers to amend the trust. This may include changing the distributions based on the needs and circumstances of beneficiaries, amending to reflect changes in the law, or merging multiple convictions.
These amendment powers can be especially important in irrevocable trusts adapting to future tax laws or public benefit eligibility rules. They can be vital for preserving asset protection and other planning benefits.
Hiring a professional to be your trustee rather than a friend or family member is generally a good idea. Professionals have the knowledge, experience and time to serve in this role. They will be more likely to do a thorough job and ensure your wishes are carried out accurately. They will also have the proper training and education to understand complex estate planning issues and laws. This includes understanding federal and state law, including tax law. They can correct any drafting errors in the trust document so the trust operates as intended.
Power to Remove Trustees
For long-term trusts – for minors, special needs beneficiaries or family trusts across generations a trust protector provision is vital. Depending on the terms of the faith, the protector can remove trustees who are not performing their duties ethically or competently. They can also limit a trustee’s powers or replace them on a showing of good cause.
Those who serve as Trust Protectors need to have the time, ability and expertise to monitor a trustee properly. While many choose to name a close friend or family member, an experienced financial professional with the proper credentials can perform this function much more effectively.
In addition to monitoring trustee performance, a Trust Protector can amend the trust provisions to accomplish beneficiary tax planning. Changes in state and federal law can impact your trust, and a protector can make the necessary changes to help your beneficiaries take advantage of the tax advantages of your irrevocable trust. A protector can also change distributions to beneficiaries based on their current circumstances, for example, when they face debt, bankruptcy, a divorce or other catastrophic events.
Power to Change Distributions
Irrevocable trusts are effective tools for transferring wealth to family members in a tax-advantaged manner. However, they can be inflexible if you need to change provisions in the future. This is where a trust protector can be helpful.
A trust protector can be given a broad range of powers, including the power to remove or replace trustees, control investment and beneficiary distribution decisions, veto a trustee’s action, merge separate trusts, and more. A trusted advisor should carefully consider the powers granted to the trust protector.
In addition to these broader powers, a trust protector can help accomplish tasks for the trust that the Grantor cannot do personally due to taxes (more on this later), legal prohibitions, disability or death. This can include correcting typos, adding or removing beneficiaries, changing administrative provisions in case of changes to the law, merging trusts for simplicity of administration, and more. A Trust Protector can also resolve disputes between trustees or between beneficiaries. These are all important powers to give to someone you trust who has the knowledge, experience, availability and impartiality to step in and ensure that your plan is carried out exactly as you intend.
Power to Change the Location of the Trust
Trust protectors have a variety of powers expressly provided for in the trust instrument. These can include the ability to monitor trustees and veto certain decisions. They can also amend the trust to accommodate changes in laws, especially tax codes, and provide flexibility as beneficiaries’ needs change over time.
For example, if one of your beneficiaries faces bankruptcy, lawsuits or divorce, the trust protector could amend distributions and transfer assets into a separate protective trust to keep them from being taken by creditors or lost to taxation. This provides your beneficiary with the protections you intended them to have.
Of course, the power to do all this requires someone with the knowledge, experience and time to perform this role. While you can name a friend or family member as a trust protector, I recommend choosing a professional. You’ll get the most value from a qualified, licensed attorney familiar with estate planning. This will save your loved ones time and money in the long run by avoiding unnecessary delays and court involvement.
Power to Change the Beneficiaries
Your family’s situation and goals are likely to change over time. A beneficiary who gets married, divorced or develops an addiction may need more or less of their share than you originally intended. The birth of a new grandchild, the death of a loved one and even the location of your trust (if you move to another state with a more favorable tax rate) may also need to be adjusted.
A protector with the power to amend the trust can make these changes. They can also monitor the activities of a trustee and, in some cases, take action to remove a Trustee who has gone rogue or failed to perform their duties.
A protector who has the power to modify the terms of an irrevocable trust can avoid the need for court involvement. This can save money, reduce stress and protect your assets and goals. A professional fiduciary can do this task more quickly and effectively than a friend or family member. This is why having a Trust Protector provision in your estate plan makes sense.
