Blog Trust Protectors
By Cowles Liipfert
What is a “Trust Protector” and what is the purpose of a Trust Protector?
A Trust Protector is someone other than a Trustee who is appointed to oversee the administration of a trust, to ensure that unanticipated changes of law or changes in circumstance do not adversely affect the trust beneficiaries.
There can be a number of reasons for appointing a Trust Protector. Irrevocable trusts cannot be changed by the Trust Grantor (i.e., the Settlor) after the trust has been created. In North Carolina, an irrevocable trust may be modified during the lifetime of the Grantor by a Court without beneficiary consent, or by all the beneficiaries with the consent of the Grantor, but not by the Grantor alone. Such a modification, if allowed, may be expensive to accomplish.
After the death of the Grantor, it is necessary to have Court involvement, even if all the beneficiaries agree.
On the other hand, a Trust Protector can be given the power in a trust agreement to make changes in the terms of the trust – for example to adapt to factual changes or changes in the law which occur after the trust has been created, such as an unexpected death or a divorce or remarriage. This can be especially important in a long-term trust which is likely to last for many years or even decades. Also, a beneficiary may develop a personal problem, such as dependency of drugs, which was not originally anticipated.
A Trust Protector may be given broad powers over a trust, such as:
- Removing or replacing a Trustee;
- Directing, consenting to, or vetoing investment decisions;
- Amending a Trust Agreement to reflect changes in state law or the tax laws;
- Resolving disputes between Co-Trustees, if applicable, or between Trustees and Beneficiaries;
- Changing distributive provisions of a trust to reflect changing needs of a Beneficiary;
- Creating a power of appointment, whereby a new beneficiaries or beneficiaries can be added, even including as persons born or adopted years after the Trust was originally created; or
- Changing the state, the laws of which are the governing laws for the trust.
A Trust Grantor should be careful in setting out the powers of a Trust Protector in a trust agreement. The more specific the powers of the Trust Protector are, the more likely that the Grantor’s wishes will be carried out.
Article 8A of N.C. Gen. Stat. Chapter 36C describes the powers, duties and liability of power holders other than trustees, and that of trustees of trusts for which there are outside power holders, see G.S. Sec. 36C-8A-1 et seq.
The selection of a Trust Protector is very important. Sometimes a Trust Grantor may wish to select someone with special skills or experience, or who is familiar with the family or with beneficiaries. Sometimes it may be preferable to appoint a committee to serve as Trust Protector. Anyone named by the Trust Grantor can be a Trust Protector, but it is generally better to have someone outside the family to serve in that capacity, who may be more objective than a family member. Often an accountant or attorney, or even a corporate fiduciary which provides trust protector services, is named as the Trust Protector. If you have questions about using a Trust Protector, please contact an attorney with our firm who practices in trust and estate planning or trust administration. Please contact our firm at (336) 725-2900.