Establishing a trust is something you might consider if you’d like to take estate planning beyond a simple will. Naming a trustee is an important part of the trust creation process but you might find it helpful or necessary to name a trust protector as well. Trust protectors serve as intermediaries between the trustee and the trust beneficiaries. Their primary role is to protect trust beneficiaries and their interests.
A financial advisor could help you put an estate plan together for your family’s needs and goals.
What Is a Trust Protector?
A trust protector is an individual (or group of individuals) who effectively oversees the actions of a trustee. The trustee is responsible for managing the trust according to the terms established by its creator. Trustees are obligated to follow a fiduciary duty, meaning they must act in the best interests of the trust beneficiaries.
If you’re the settlor or grantor of a trust, you can name someone to serve as a trust protector alongside the person or entity you name as the trustee. The trust protector’s main job is to protect beneficiaries against unethical actions or decision-making. A protector can act as a check against the trustee to ensure that they’re not overstepping the bounds of their authority.
What Powers Does a Trust Protector Have?
The exact scope of powers a trust protector has is defined by the trust document itself. State law may specify which powers or responsibilities a trust protector can possess. But generally, a trust protector may be authorized to:
- Add or remove beneficiaries to the trust after it’s created
- Adjust distributions of trust assets based on the beneficiaries’ lives
- Approve changes made to the language of the trust document itself
- Terminate the trust
- Fire or otherwise remove the trustee
That last one is important because it underscores the role of the trust protector, which is to protect the beneficiaries. If a trustee behaves in a way that violates their fiduciary duty, then the trust protector can step in to have them removed and replaced with someone else. Examples of actions that constitute a breach of fiduciary duty include:
- Withholding trust distributions from beneficiaries
- Misuse of trust assets
- Negligence in managing the trust
The protector is there to ensure that the trust grantor’s wishes are carried out, according to the terms set by the trust, both during their lifetime and after they pass away. But that doesn’t necessarily mean they’re constantly looking over the trustee’s shoulder.
If you’re the beneficiary of a trust and you believe the trustee isn’t managing the trust the way they’re supposed to, you’d have to bring that up with the trust protector. They could then step in to see if the trustee is following their fiduciary duty and if not, how the situation should be remedied.
Who Can Be a Trust Protector?
The trust grantor can name a protector of their choosing, though there are some guidelines as to who can and cannot fill this role. Generally, a trust protector must be someone who:
- Is not related to the trust grantor in any way
- Does not have an interest in the trust
- Has the capacity to fill the role
That means you couldn’t name one of your children or a spouse as a trust protector, even if they’re not a beneficiary of the trust.
A trust protector may be an attorney, though they don’t have to be. At a minimum, the protector should be someone you can rely on to protect the trust beneficiaries and follow up when questions are raised about the trustee’s activities.
Benefits of Choosing a Trust Protector
There are several advantages to naming a protector for a trust even in situations where you believe the trustee will follow their fiduciary duty to the letter. Here are some of the benefits of having a trust protector:
- Make changes to the trust if necessary after the grantor has passed away, without having to go to probate court.
- Use their discretionary power to make decisions that are designed to benefit the trust beneficiaries in situations where it may be necessary to protect assets from creditors.
- May possess expertise or knowledge that can assist the trustee when managing special asset classes, such as antiques or collectibles.
- Help ensure that the trustee is carrying out their duties and responsibilities and remove trustees when necessary if the beneficiaries request it.
- If the current trustee decides to step down, the trust protector can oversee the transition period until a successor trustee is named.
If there’s one potential downside to note it’s that trust protectors are entitled to charge a fee for their services. While these fees must be reasonable, paying a trust protector and a trustee adds to your total cost of maintaining the trust.
Who Needs a Trust Protector?
If you’re planning to create a trust as part of an estate plan or you already have one, it’s helpful to think about whether adding a trust protector makes sense. You may consider naming a trust protector if you:
- Have a trust that includes specialty assets that your trustee may not be familiar with
- Are concerned about how life changes or changes to the estate tax code may affect your beneficiaries’ inheritance from the trust
- Want to build some flexibility into the trust as protection against shifts to estate planning or inheritance laws
- Would feel more comfortable knowing that there’s someone who can rein in the trustee if necessary
On the other hand, a trust protector might not be necessary if you have full confidence in the trustee (and successor trustees) you’ve named or the trust itself is fairly straightforward. Talking to an estate planning attorney or your financial advisor can help you decide whether having a trust protector provision makes sense and if so, who you might consider choosing to fill this role.
Setting up a trust may work to your advantage if you have a more complicated estate or you want to set specific guidelines on when beneficiaries can receive their inheritance. Depending on how they’re structured, trusts can be used to protect assets from creditors, create a legacy of charitable giving and minimize estate taxes. Naming a trust protector along with a trustee can give you added peace of mind that your wishes will be adhered to during your lifetime and beyond.
Estate Planning Tips
- Consider talking to your financial advisor about whether a trust is something you need in your estate plan and if so, how to go about setting one up. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- In addition to a trust, remember that the most basic building block of an estate plan is a last will and testament. You can use a will to decide how you want your assets distributed and name a guardian for minor children if necessary. Without one, your assets would be divided according to state inheritance laws. Online will-making software can be an affordable option for creating simple wills. If you have a more complex estate, however, you may want to talk to an estate planning attorney to get help with drafting a valid will.
Photo credit: ©iStock.com/Dean Mitchell, ©iStock.com/skynesher, ©iStock.com/skynesher