Many estate plans contain irrevocable trusts designed to continue for the benefit of a spouse’s lifetime and future generations. It is important that these trusts include a trust protector; with the power to change trust provisions as circumstances, beneficiaries, and governing laws change.
What is a Trust Protector?
A trust protector is an individual or group of individuals. Trust protectors have the power necessary to ensure fulfillment of the goals of an irrevocable trust. Generally, the trust protector may be a family member or friend (typically not a beneficiary or trustee of the trust). Often an unrelated trusted advisor, or a group of these individuals acting by a majority or unanimous agreement. Naming a trust protector will depend on the trust creator’s wishes and the intended duration of the trust.
What Powers Should a Trust Protector Hold?
The trust creator gives a trust protector as few or as many powers as they desire. It is tempting to give a trust protector a wide array of powers to deal with every possible future circumstance. The trust creator should carefully consider the specific purposes and goals and only give the trust protector powers to further those purposes and goals.
Regardless of a trust creator’s intent, below are three powers that all trust creators should consider giving their trust protectors:
- Power to Amend Trust Provisions. Some irrevocable trusts intended to continue for multiple generations begin as revocable trusts. These revocable trusts become irrevocable after the trust creator dies or at some other future date. If the trust creator fails to update the trust due to changes in circumstances, beneficiaries, or governing laws while the trust is still revocable, a trust protector can fix these issues after the trust becomes irrevocable.
- Power to Add, Remove and Replace Trustees. Giving the power to add, remove and replace trustees to trust beneficiaries may defeat the trust creator’s intent. Beneficiaries with this power may hastily remove a trustee who does not give into their each and every request. Giving a trust protector this power makes for better results. As a disinterested party their review of whether the trustee is acting to fulfill the trust creator’s intent.
- Power to Change Trust Situs and Governing Law. It is impossible to predict where the beneficiaries and trustees of an irrevocable trust will live in the future. This critical power ensures the trust will continue for as long as the trust creator intended with minimum tax consequences. Giving this power to the trust protector allows an objective party to determine if the change is beneficial or necessary.
Final Thoughts on Trust Protectors
Including a trust protector in an irrevocable trust agreement or a revocable trust agreement is critical to the success and longevity of the trust. Nonetheless, the trust protector should only be given powers that will ensure the purposes and goals of the trust creator are ultimately fulfilled.
If you are interested in adding a trust protector to your trust or would like to have the trust protector provisions of your trust reviewed, please contact us.