A trust protector is an independent third party or institution that’s given the authority to perform certain duties concerning a trust.
A trust protector’s role is to ensure that the wishes of the trustmaker—the individual who made the trust—are fulfilled and that the trust continues to serve the purpose for which it was intended. The trust agreement typically details the trust protector’s responsibilities and their areas of authority.
Who May Serve as a Trust Protector
As an independent third party, the trust protector cannot be related to the trustmaker, any of the trustees, or any trust beneficiaries. Sometimes the trust agreement—the trust’s formation documents—will specifically name a trust protector, but it might instead just lay out the process by which a trust protector can be appointed. If the trustmaker is married, their spouse may be granted the power to appoint someone.
Otherwise, the trust beneficiaries can nominate someone, and the court can appoint that individual. If the trust agreement names a specific individual, the document should also specify how that initial person should be replaced if they are unable or unwilling to serve when called to action.
The Powers the Trust Protector Can Exercise
A trust protector is most commonly associated with irrevocable living trusts. For all practical purposes, the terms of these trusts are set in stone. The trustmaker of an irrevocable trust cannot later undo it or take back the property placed into it.
In the case of an emergency, only a trust protector can step in and take action to make things right. An example of a situation that would warrant a trust protector taking action include changes in the economy that cause the trust to lose money at an alarming rate as it’s presently set up. The trustmaker has relinquished all control, so they’re personally powerless to remedy the situation, and it falls on the trust protector to act.
Whether a trust protector can act depends on their powers. The trust protector may be granted limited or expansive powers. At a minimum, they should be able to remove and replace the existing trustees. They may also be given the power to settle disputes among co-trustees, or between trustees and beneficiaries. The ability to alter trust provisions due to unanticipated circumstances, such as changes in the economy or tax laws, is another power that may or may not be granted to a protector.
This power is critical for dynasty trusts that can continue for many years after being set up. Longer timelines increase the possibility of situations arising that would require a trust protector to terminate the trust entirely, to modify the powers of the trustee, to change the situs or legal jurisdiction of the trust, or to correct ambiguities or errors made when the trust was drafted.
Under the laws of some states, the trust protector will be able to exercise these powers without the need for court approval. This can minimize the costs incurred in administering the trust.
Paying the Trust Protector
A trust protector is entitled to compensation for the services they render on behalf of the trustees and beneficiaries. The trust agreement should set forth the method for determining how much they are paid.