Many of us are familiar with trusts and may already be using a trust for various purposes. We are also likely familiar with the common players involved in any given trust: (a) grantor(s) or settlor(s), (b) trustee(s), and (c) beneficiary(ies). A grantor or settlor is the person who creates the trust and transfers ownership of his or her asset(s) into the trust. A trustee is the person who manages the day-to-day administration of a trust. Beneficiaries are individuals who may have a current or future interest in the income or principal of a trust. Another player we may be hearing more of and may consider using is a trust protector or advisor.
A trust protector (or advisor) is a person that the grantor names to ensure that the trustee carries out the wishes of the grantor as provided under the trust instrument. While the trustee is involved in the day-to-day administration of the trust, a trust protector is not. A trust protector’s role is to monitor the actions of the trustee and make critical decisions about the operation of the trust or the distribution of trust assets. Some of the important tasks a trust protector may perform are as follows:
(1) Advisor to Trustees – Where a trustee is not savvy with investing trust assets, a trust protector who has investing expertise may be appointed to advise the trustee. Depending on the needs of different trusts, a trust protector from various professions such as real estate investment, accounting, and legal may be appointed to advise the trustee. Also, a person who knows the intent of the grantor or the needs of the beneficiaries may be appointed as trust protector to advise bank trustees when exercising discretionary distributions from the trust.
(2) Monitor the Actions of Trustees – Instead of having the beneficiaries ensure that the trustee adheres to the terms of the trust, a trust protector can be appointed to do so. An important power that a trust protector should have is the ability to remove and replace a trustee without court approval.
(3) Mediating Disputes – As an alternative to potentially expensive court proceedings, a trust protector may be appointed to mediate any disputes between the trustee and beneficiaries or among the beneficiaries. This person can be a family member or friend who is familiar with the grantor’s wishes and is able to interpret any ambiguity in the trust.
The use of a trust protector is beneficial in many ways and should be considered and tailored towards each trust. Currently, New York has proposed, but has not yet enacted legislation governing the legal status of trust protectors. However, even without legislation governing trust protectors, a grantor can appoint a trust protector where appropriate and clearly delineate the role and powers of the protector in the trust instrument.