These days, we are encountering more and more disputes over estate plans. One area where we never thought we would find a place for litigation is over the actions of someone called a “trust protector.”
A trust protector is someone whom the grantor nominates to act to oversee the administration of the trust. Often, clients have no idea that they have nominated a trust protector; they were not properly advised of what a trust protector is or what their role is supposed to be.
The Role of a Trust Protector
A trust protector is a bit of a bizarre creation because a typical trust nominates trustees who are almost always a person with whom the grantor of the trust has a significant level of confidence in to carry out their intentions. We are finding more and more that trust protectors are not made known to the grantor when forming their trust and are not persons usually that the grantor would be comfortable wielding such immense powers. Trust protectors are not the trustee, but they can have powers above and beyond the powers of the trustee. These powers can include the removal and replacement of the trustee with a total stranger of the trust protector’s choosing!
Benefits and Ethical Concerns of Trust Protectors
Now, there are certainly situations where a trust protector would be extremely helpful in ensuring that the trustee is doing their job properly. There are also situations where a trust protector could be helpful in making objective decisions when the trustee may also receive a benefit based on some provision of the trust (such as choosing a value for real estate that they are going to receive out of the trust).
However, there are at least three major problems we are seeing with trust protectors:
- They are not actually monitoring the trust administration;
- They are given powers which, if wielded, could contravene the grantor’s express intent in making the trust;
- The client has NO IDEA that their attorney has inserted a trust protector provision.
The third point here is the most common one we are seeing, and we are seeing it more and more, especially in trusts drafted by large law firms. The drafting attorney has inserted a provision which appoints a trust protector with extremely broad powers.
The trust protector then happens to be none other than either THE DRAFTING ATTORNEY or someone the drafting attorney has a close relationship with, such as a close colleague or law partner. Not surprisingly, these can create a tail of fees that the client may or may not know about. These trust protectors can also inhibit the efficient administration of the trust, all while depleting trust assets to pay for the trust protector’s usually unnecessary involvement. In our view, these provisions should not be included without a full and frank discussion with the client.
Ensuring Informed Consent
We do not have a problem with the existence of a trust protector, but we do have a problem with lawyers who insert these provisions without getting their client’s informed consent to include them or having the opportunity, in many cases, to select any such trust protector. And we get it—you signed your trust, which is a long document chock full of boring legalese, and you spent 20 minutes going through the highlights with the drafting attorney. You may not be aware that you have nominated a trust protector!
If you want to discuss the existence of a trust protector in your existing trust and whether it’s actually right for you, Chris and Carl are available to do so free of charge.