TRUST & ESTATE PERSPECTIVES

What are trust protectors?

Discover a promising resource for the ongoing transfer of wealth

Trusts have long been invaluable tools for facilitating effective wealth transfers. Unfortunately, as time progresses and circumstances change, the original wishes of trust settlors may not be fully adhered to by the various parties associated with the trust. Appointing trust protectors can help alleviate these issues and provide trusts with the flexibility needed to persevere for generations to come.

Originally popularized in international trust planning as an added safeguard against fraud, trust protectors were first adopted in the Unites States during the 90’s. Their popularity has grown on a state-by-state basis within the U.S. and it is now common to see trust protector provisions included in domestic trust documentation.

So, what is a trust protector?

Simply put, trust protectors are individuals who are appointed by trust settlors to make certain that trustees abide by the settlor’s wishes as time passes from one generation to the next. In other words, the trust protector acts in the best interest of the settlor by keeping an eye on the actions of the parties associated with the trust and its administrative duties.

Appointing a trust protector is an effective way to hedge against unforeseen issues that may arise with trustees or beneficiaries well into the future. There is currently no universal definition for a trust protector and their powers are regulated by each state’s laws, so their responsibilities may be broadly or narrowly defined within each trust as needed.

What are the advantages of appointing a trust protector?

The ability to guide a trust through unforeseen generational changes is one of the primary advantages offered by a trust protector. A trust protector may also help prevent the possibility of trustee misconduct. For example, a settlor may give the trust protector the authority to remove or replace a trustee if any trustee misconduct is discovered. This authority may be executed without the approval of beneficiaries or the need to resort to the time and expense of legal action.

Appointing a trust protector with the power to remove or replace a trustee may also be more advantageous than giving this authority to a beneficiary as beneficiaries may be tempted to appoint trustees that are more aligned with their own, individual desires and not necessarily those of the settlor.

What kind of authority do a trust protector’s have?

The title of trust proctor has no inherent powers. As a settlor, you may assign the trust protector role as you see fit within the bounds of your state’s trust statutes. Typically, a trust protector’s authority involves overseeing the trustees and making changes when a trustee is not acting in accordance with the settlor’s intensions.

In this capacity, a trust protector may be authorized to remove and appoint trustees, add beneficiaries or modify terms of the trust in order to keep the settlor’s intentions at the forefront as beneficiaries become more and more removed from the settlor as time progresses.

The trust protector’s duties may also include the approval of sales and/or distributions of assets and even minor administrative decisions and a range of other powers that reach beyond the supervision of the trustee. In addition, the trust protector may be empowered to appoint successor protectors as the need arises.

Is a trust protector right for me?

Given that they offer tangible benefits to the settlor and have become more common in the U.S., appointing a trust protector is worth considering. Trust protectors can ensure trustees to act in accordance with the wishes of settlors, now and well into the future. When defined clearly within the trust provisions, the appointment of trust protectors can add flexibility to the trust and peace of mind to settlors. Their benefits are applicable to new as well as existing trusts via redrafting.

Selecting an effective trust protector

Given the wide range of authority that can be assigned to a trust protector, an intimate understanding of the family dynamics and the settlor’s intensions are critical. In order effectively serve the long-term interests of the settlor, the position should be assigned to an individual who has detailed knowledge of family history as well as the technical expertise to see through generational changes, react to any tax law changes and solve unanticipated crises.

For additional information

When helping clients pursue their financial goals, SVB Private employs a diverse team of professionals to bring the custom-tailored services of a boutique wealth management firm to life. When it comes to execution, we provide the resources and technology of a large financial institution.

As a SVB Private client, you have access to a full spectrum of wealth, trust and banking services. If you have been looking for a meaningful relationship with a wealth advisor who has the experience, expertise and resources needed to assist you with complex financial resources such as trust protectors, consider SVB Private.

Gerald E. Baker

Gerald Baker is the head of Trust & Fiduciary Services and co-head of the Center for Wealth Planning Excellence at SVB Private.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank and SVB Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein