Trust Protectors and Popcorn

First some background: All trusts begin with three plates at the table. There is a Trustor (or Grantor), who is the person forming the trust by transferring property to a Trustee (and hopefully signing a well-drafted Trust Agreement). So there is also a Trustee, who is in charge of managing the property and carrying out the Trustor’s directions as set forth in the Trust Agreement. And there is a beneficiary, who is the person who receives some benefit from the trust. Of course, there could be more than one Trustor, more than one Trustee, and frequently there will be more than one beneficiary. Additionally, bear in mind that all trusts are either revocable (meaning that the Trustor can still change the Trust Agreement) or irrevocable (meaning that the Trust Agreement can’t be changed). Revocable Trusts frequently become irrevocable at some point (e.g., when the Trustor dies). Many end quite soon thereafter (when I die take all that I have and divide it equally between my children and give it to them as soon as you can…). But others continue to hold property in trust for quite a while, sometimes for a generation or two (take all that I have and make payments to my kids each year, or hold this property for them to use, etc.). A lot can happen during that time. And many trusts are irrevocable from their very beginning.

With that in mind, it is becoming increasingly common to set another plate at the table, for someone called a Trust Protector. Or maybe it is more appropriate to think of the Trust Protector as being in the next room eating popcorn and watching TV?

The Trust Protector exists to protect the purposes of the Trustor. But unlike the Trustee, who is involved in the day-to-day operations of the Trust and is obligated to act as a fiduciary, the Trust Protector doesn’t ‘do’ anything until someone asks. When someone (usually a beneficiary) gets up from the table and goes into the next room to get the Trust Protector, the Trust Protector may spring into action.

And what can he do should he so choose? The Trust Protector has very limited and specific powers, and these are usually laid out in the Trust Agreement. The most common things that a Trust Protector can do is to remove a trustee and appoint a successor trustee, or to amend the trust to comply with current tax law or otherwise to save on taxes. Sometimes a Trust Protector may be given the power to change a beneficiary’s interest. Generally the Protector’s exercise of these powers will be in response to the request of a Trustee or Beneficiary, not an action that the Protector takes on her or his own initiative. The Trust Protector does not independently monitor things, he is not ‘paying attention’ until someone asks for his help. Hence, we might describe the Protector as not being at the table, but in the next room watching TV. Trust Protectors do not get paid (except for the popcorn they eat).

But even though the Trust Protector’s assistance must be sought by someone, his power(s) can be useful if the Trust is going to be ‘in business’ as an irrevocable trust (which, remember, by definition can’t be amended—at least not in theory) for a long time. And it is useful because it is one way to give the person forming the Trust some guard against unanticipated changes in the future without either necessitating court involvement or the agreement of the beneficiaries. But it can also cause problems, and needs to be well thought-out. Yet another reason why estate plans are not one-size-fits-all packages that can easily be obtained off-the-rack. The key aspect of estate planning is the planning, and it is not a bad idea to revisit your estate plan from time-to-time, and especially in light of major life changes, to make sure it is still the best plan for you.