An estate planner cannot plan for everything, but an estate plan can include an unrelated third party to oversee the trust and make changes to the plan with any required fluctuations or changed circumstances. This unrelated third party is called a trust protector. A trust protector is defined as a person who the settlor appoints to ensure that the trustee carries out the settlor’s wishes and any disinterested person with the discretionary powers outlined in the governing trust instrument and whose decisions are typically binding on all parties.[1] A trust protector allows a settlor to maintain flexibility to modify the trust terms as circumstances change.[2] When changed circumstances—including changes to applicable laws or changes in the beneficiaries lives—alter the effectiveness of a trust agreement, the trust protector should be given the power to expand or reduce the flexibility the trust agreement affords the settlor, the beneficiaries, and the trustee.[3] The following is a list of general powers given to a trust protector: (1) the power to modify or amend the trust instrument to achieve favorable tax status or respond to changes in any applicable federal, state or other tax law affecting the trust; (2) power to appoint or remove a trustee and (3) the power to increase or decrease any interest of the beneficiaries in the trust or to grant or terminate a power of appointment.[4]
Trust protectors serve as watchful eye over a trust and can be granted the power to amend a client’s estate plan. Although States differ on whether the role of a Trust Protector rises to a Fiduciary Level, the selection of the trust protector requires careful consideration. The individual chosen is trusted and experienced in taxation and estate planning. The point is that besides giving direction to trustees, trust protectors are included in trusts for the sole purpose of stepping into the shoes of the settlor by providing the power to alter, amend, or change trust provisions due to an unforeseen change that affects the trust itself.
[1] Gregory T. Densen, Trust Protectors: Powers, Capacity, and Selection, 41-SEP Colo. Law. 63 (2012)
[2] Gideon Rothschild, Trust Protectors: What Role Do They Play?, SS043 ALI-ABA 585 (2011)
[3] Gregory T. Densen, Trust Protectors: Powers, Capacity, and Selection, 41-SEP Colo. Law. 63 (2012)
[4] Gregory T. Densen, Trust Protectors: Powers, Capacity, and Selection, 41-SEP Colo. Law. 63 (2012)