Why Use a Trust Protector?
The use of Trust Protectors is becoming increasingly common, particularly in irrevocable trusts that may last for decades, if not generations. A Trust Protector is generally an individual, often an attorney, cpa or family member, who is given certain powers over a trust by the trust grantor. These powers can provide increased flexibility and protection for the benefit of the trust beneficiaries.
Here are the most common specific reasons to use a Trust Protector:
- To allow a trust to be amended to take advantage of changes in the law.
- To allow removal and appointment of a trustee.
- To have an independent party to exercise distribution powers when the trustee is also a beneficiary.
- To allow amendments to comply with tax law provisions to maintain or increase tax advantages to a trust.
- To provide for management of special trust assets.
- To provide for removal of trust assets from a creditor jurisdiction (in offshore or domestic asset protection trusts).
- To allow change in the governing law or tax situs of the trust.
- To allow addition of additional beneficiaries (such as new descendants).
- To make certain tax elections.
- To "watch over" the trustee.
I generally do not recommend choosing a family member as a Trust Protector, because, depending on how close the kinship is, a family member serving in that role could create income and estate tax problems due to attribution rules. Also, family members rarely have the expertise needed to make and carry out the necessary decisions.
Attorneys and CPAs may be wary of serving due to concerns about liability. Corporate fiduciaries may have the same concern, and are not set up to serve in that capacity. One alternative is to use a specialty Trust Protector firm such as TrustProtector, LLC.
When a Trust Protector has been used in an ILIT, who, if anyone, has the power to remove him/her?
RESPONSE: Depends on the terms of the trust. Usually I have it be my law firm, but it can generally be any unrelated party.
The marriage of 2 people has brought 2 families together. The current issue involves a trust in which the only item is a personal residence. The wife has died, therefore making this an irrevocable trust. The widow is no longer living in the said residence and will not be returning. The 2 trustees (1 offspring from each side of the marriage) are trying to come to an agreement on listing and selling the personal residence, which they understand the proceeds will remain property of the trust. The trust protector (a family member/beneficiary/attorny/executor of the deceased estate) is trying to dictate all of the terms of the listing and sale of the personal residence. 1. Does he/she have the right to do this? 2. Can he/she be removed as Trust Protector (due to multiple conflicts of interest)? 3. If yes, how and by whom?
RESPONSE: The answers to your questions depend on the terms of the trust and the laws of the state that governs the trust. I suggest you schedule a consultation with an attorney who can review the document and advise you.
Can a beneficiary of a NC irrevocable trust also be the trustee? Or is a trust protector required or recommended to be hired in order for this to work? Will the assets be included in the trustee's estate in either case?
RESPONSE: A beneficiary can be the trustee, if the trust is drafted properly, but it is often not advisable if the best protection of the assets is desired. I recommend that you consult with an experienced trust attorney to have your specific questions answered.