If the concept of a “trust protector” is new to you, you’re not alone. Up until the 1990s, the role was familiar almost exclusively in the context of offshore trusts established in tax havens, such as Panama or the Cook Islands. Individuals establishing such trusts popularized the role in response to concerns about entrusting assets to a professional trustee in a foreign country. A trust protector, then, was often a trusted family friend, attorney, or advisor who is assigned important legal powers, including the ability to remove the trustee, change the jurisdiction of the trust, and—depending on the arrangement—perform other important tasks.
Why Are Trust Protectors Gaining Domestic Popularity?
It makes sense that, when transferring big sums of money into a foreign account in a loosely regulated country, you would want an extra layer of protection. What’s not quite as clear is why you would need the same at home. After all, trust advisors have long existed to ensure assets placed in a trust are well-managed, and domestic legislation exists to hold trustees accountable.
While this may be true, the simple fact of the matter is that these protections are oftentimes not enough. As trusts have increased in popularity, many states have introduced legislation aimed at attracting a part of the lucrative trust industry to their shores (however metaphorical). Alaska, Delaware, and Nevada, for instance, have all adopted advantageous legislation aimed at creating conditions previously only available offshore. Business has followed, and with it, business practices…
Having a trust protector alongside a trust advisor is now common, and both positions serve an essential role. A trust advisor addresses a much broader set of concerns relevant to the maintenance and distribution of trust assets. A trust protector, normally, is singularly in charge of ensuring the trustee (the person or business responsible for managing the trust) does not abuse their position. Other responsibilities and powers can be granted to a trust protector, but their essential role is to remove the trustee, should they be found engaged in profiteering.
Who Needs a Trust Protector?
It’s easy to assume that trust protectors, trust advisors, and professions of this ilk are the purview of the super wealthy, but this is not true.
Everyday individuals employ trusts to streamline their estate planning, fund their children’s education, and keep their assets out of probate court, among many other uses. Whenever a trust is created, a trustee is appointed. Even revocable living trusts—among the most common and simplest variety—require oversight. Though you may be the settlor, trustee, and beneficiary while living, when you die these roles pass to others. Whoever you’ve appointed as successor trustee is the person you need to worry about.
Naturally, you invest time and careful thought into appointing a trustee, but this doesn’t diminish the fact that you also invest a lot of, well, trust in them. It’s nice to think a loved one or close associate would never abuse your vote of confidence, but it happens. In fact, it happens fairly often.
Instituting a trust protector is simple and intuitive. You trust your car manufacturer, but you wouldn’t drive without insurance. Likewise, you trust your trustee, but you would be silly to overlook the need for oversight.
An experienced estate planning attorney is your best resource for learning more about executing a trust and ensuring you have appropriate protections in place.
To learn more, do not hesitate to contact the dedicated team at Caress Law either by calling (503) 292-8990 or using the contact form below.