The Benefits of Having a Trust Protector in Your Estate Plan
A Trust Protector is an essential part of your estate plan. It can help you prevent trustee misconduct and ensure your wishes are fulfilled.
A Protector’s powers can be limited or broad, depending on the type of protection you want to add to your Trust. Joint capabilities include:
- Removing and replacing a trustee.
- Changing distributions to beneficiaries.
- Amending the terms of an irrevocable trust.
Ensures that your wishes are carried out
A Trust Protector can be helpful if you set up an irrevocable trust and aren’t entirely confident in the trustees (and successor trustees) that you’ve chosen. “A protector can serve as a sort of safety net to make sure your wishes are carried out,” SmolenPlevy principal Jason Smolen says.
For example, a protector can replace a trustee who has not fulfilled their duties well and may even be wasting the trust assets. The Protector can also amend the Trust to address changes in law or unforeseen circumstances.
Beneficiaries may get divorced, become disabled, or pass away, and the laws that govern inheritance and public benefits will change over time. A protector can help make these changes without going through probate court.
A protector can also offer recommendations regarding beneficiary designations, ensuring that your family and friends are protected and your estate is distributed as you’d like. Of course, the person you choose to be a protector should know about your Trust and its terms, experience managing estates, and the professional time to fulfill this role. Selecting a trusted friend or relative who doesn’t have the right qualifications can lead to disaster. An experienced living trust attorney in California can advise whether a protector is necessary and the best candidate to fill this role.
Prevents a Trustee from mismanaging the Trust
A trust protector is essential to prevent someone from mismanaging the assets in your irrevocable Trust. This person can be an outside party or a trusted family member trained and experienced in managing wealth. Typically, the person chosen to serve as a Protector will have a wide range of powers, including removing and replacing trustees; controlling investment and distribution decisions; vetoing a trustee’s action, and more. The powers granted to the Protector are described in the trust agreement, and a good estate planning attorney can help you determine whether a protector is appropriate for your plan and what scope of power is proper.
A protector can also monitor the activities of a trustee to ensure that they comply with their fiduciary duties and act in their beneficiaries’ best interests. This monitoring is beneficial if you think someone could be breaching their fiduciary duty, such as if they started giving away trust funds to people not named in the Trust or transferring assets out of the Trust without your permission.
This is why it is a good idea to make sure that the person you appoint to be a protector has significant experience and knowledge in asset management and that they have a deep understanding of your original estate planning goals. The person should also be able to handle any problematic situations with your family members and their families with tact and diplomacy.
Prevents Trustee Conflicts
If you name a Protector in your Trust, they will have the power to monitor and, in some cases, remove the Trustee. They can also be given the power to appoint a new Trustee (although that should be carefully controlled so they cannot just fire the existing Trustee and then have two people looting the Trust).
Your Protector can also act as a mediator in disputes between co-trustees, between the Trustee and a beneficiary, or between beneficiaries. Ideally, your Protector will be an unrelated third party (a family friend, an advisor, the attorney who drafted your Trust, or your family CPA). A family member may not be a good choice as a protector because it could create a conflict of interest and expose them to liability.
The Protector can also modify the Trust to keep up with changing laws, family configurations, or shifting assets. This can avoid the expense and hassle of going through probate court.
Although the trust protector’s traditional role has been defensive, their power can become proactive. By examining the Trustee regularly, they can help ensure that the Trustee complies with the Grantor’s wishes and can quickly correct any problems. They can also guide the Trustee in interpreting the Trust’s instructions.
Prevents the Trustee from Taking Advantage of the Trust
Often, a family member who does not wish to serve as a trustee may be willing to take on the less labor-intensive role of a trust protector. This is particularly true if they need more time to manage an extensive portfolio of assets or want to mitigate their potential liability exposure. Private, professional fiduciaries are also often available as trust protectors if necessary.
A trust protector’s primary benefit is preventing the Trustee from taking advantage of the Trust. Unlike beneficiaries, who have the burden of proving misbehavior, the Protector can remove and replace a trustee if it is discovered that they are taking undue advantage of the Trust. This can save beneficiaries from spending money pursuing a legal claim against the Trustee.
A trust protector can also make changes to the Trust if required. This is particularly important if you establish irrevocable trusts for purposes like Medicaid or VA benefits qualification, special needs, or asset protection. It is not uncommon for laws to change between when the original Trust is written and when it is executed, making it necessary to amend the Trust to accommodate new circumstances.
A trust protector can also merge multiple trusts to simplify administration. This can be a helpful tool if you establish separate trusts for each of your children, and then later, one of them becomes incapacitated or dies. This can prevent conflicts of interest and make the management of your estate more efficient for your beneficiaries.