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A Protector Facilitates the Proper Administration of a Trust

A Protector Facilitates the Proper Administration of a Trust

After a settlor has set up a Trust and selected its trustee or trustees, there is one more step that needs to be taken to ensure that the Trust agreement is adhered to by the trustees. A settlor can never be sure about potential scenarios in which the trustees act against the Trust agreement, or fail to act as required by the Trust agreement.

Such actions would constitute breaches of Trust by a trustee. Examples of such breaches include distributing Trust assets to a beneficiary who is not entitled to them under the Trust agreement. Another example is investing the funds in a Trust in a way that is not permitted in the Trust agreement. As a case in point, the settlor may have explicitly stated that Trust funds cannot be used to buy high-risk derivative products but the trustee does so anyway, lured by the potential for high returns.

To guard against such eventualities that go against Trust agreements, the settlor should also appoint a person to oversee the activities of the Trust and the trustees when he sets up the Trust. This person is called the Trust Protector, or simply, the Protector. Essentially, the Protector’s job is to protect the beneficiaries of a Trust from its trustee or trustees. A Protector is usually appointed through the original Trust agreement.

To this end, the Trust agreement should include a clause specifically providing for the appointment of a Protector, with a clear and concise description of the role, including its limits. Giving too much power to a Protector could also potentially lead to abuse as circumstances may change. At the very least, the clause should list the powers to be held by the Protector as well as a procedure for the Protector to appoint a successor if needed.

What is the role of a Protector?

A Protector can hold a range of powers over a Trust. As such, he or she should have the attributes, knowledge, and skills suitable for the responsibilities of the role. For example, if a Protector has the power to veto or direct Trust distributions to the beneficiaries, the selected Protector should understand the family history and desires of the settlor.

A settlor may select any individual or group of individuals, such as family members, business associates and friends as a Protector. Professionals such as lawyers, accountants, estate planners and other professional advisors can also be named as Protectors. Having a professional as a protector could make sense as they are likely to have a better understanding of their role and how it complements that of the trustee.

Compared to a non-professional family member or close friend, a Protector with professional qualifications will likely have a greater understanding of Trust laws as well as experience in fulfilling the role of a Protector. As such, he may be able to handle unusual issues that arise with the Trust. He is also likely to be more objective and impartial, and not susceptible to family pressures or biases.

Importantly, Protectors can provide additional oversight and support for a trustee. If the trustee is delinquent in his duties, a Protector may remove the trustee and appoint a better-suited trustee. A Protector can also help a trustee correctly interpret the provisions of the Trust agreement and address any changes in the law or in the circumstances of beneficiaries.

Finally, Protectors also provide an easier and less costly means of modifying a Trust. If a Trust needs to be modified after the settlor’s death, usually the only route is through the court system, which can be a complicated and costly process. Giving a Protector the power to modify the terms of a Trust can prevent the need to go to court to modify the Trust.

In the next blog post, we will discuss estate planning in relation to divorce cases and the appointment of guardians.

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