The term Trust Protector carries the connotation of a superhero, poised to come to the rescue when called upon. A Trust Protector’s role is to guide a trustee to ensure that a grantor’s intentions and wishes are carried out. It’s an important job, although it’s not necessarily dramatic.

A grantor of a trust or a committee appoints the Trust Protector to take charge of issues regarding the trust that the people involved aren’t able to handle. When the grantor, beneficiaries, or trustee cannot deal with a particular issue, that’s when the Trust Protector steps in.

Wondering what kind of scenarios call for such a role? Let’s take a look.

Scenario 1: When the Grantor Needs an Objective Signature

A Trust Protector provides an objective, third-party approach to setting up trusts for a grantor. This is particularly important when the grantor wants the trust to be distributed or set up in such a way that protects it from reckless spending or financial binds brought on by beneficiaries. It also prevents an individual with a conflict of interest from signing the trust(s).

One possible scenario would be if a grantor wanted each beneficiary to receive a separate trust after their death. Separate trusts protect assets from the beneficiaries’ future disability, divorce, debt, and destructive or wasteful spending. A Trust Protector can step in and provide that objective, third-party signature without bias.

Scenario 2: To Appoint an Independent Trustee

Trust Protectors may appoint an independent trustee to handle assets in such a way that fulfills the grantor’s wishes. If a grantor has clearly stated that they want to protect their beneficiaries after their death, then a Trust Protector can objectively appoint that independent trustee to step in.

Beneficiaries risk their trusts when they divorce, go bankrupt, or spend recklessly. By appointing an independent trustee, a Trust Protector ensures that distributing assets–or not distributing them–from a trust is done with full discretion and objectivity.

Scenario 3: When Terms of a Document Need Clarity

When a Trust Protector is aware of a grantor’s intentions, they can amend legal documents to clarify their terms. For example, if a trust is intended to flow to relatives including nieces, nephews, or cousins, but the wording the grantor chose was “next of kin”, then that means the trust would only go to siblings and no further.

In this case, the Trust Protector would know the intention behind the words, and could amend the legal document to add “of any degree” after the “next of kin” stipulation. This would allow cousins and distant relatives to benefit from the trust. 

Scenario 4: When Estate Taxes Need Adjusting

A Trust Protector can act on a grantor’s wish to make sure that taxes to the estate are minimized. If tax clauses will cause higher than necessary estate taxes to be paid, as written, then the Trust Protector can step in and respond to any applicable changes in the tax code. Once amended, the trust can save thousands in tax dollars.

Scenario 5: When an IRA is Left to a Trust

If a grantor has left an IRA to their trust, this can present issues for both asset protection and taxes. According to the SECURE act, an IRA must be distributed to its beneficiaries from the trust within ten years of the grantor’s death. In this case, the Trust Protector can amend the trust to reflect what the grantor intended in order to lower taxes and protect assets.

For example, a Trust Protector can amend a trust to allow IRA withdrawals to accumulate, preventing them from becoming vulnerable to creditors or any other predators waiting to take advantage of the beneficiaries. They can also fix a provision in the trust that keeps income taxes from being taken at the level of the trust–much higher than what the beneficiaries are normally taxed.

Scenario 6: When a Trustee Needs a Helping Hand 

In any situation involving a trust, the trustees are the first line of defense. Most trustees act in good faith, try to do the right thing, and take their job seriously. When a trustee has doubts on their course of action or needs additional assistance, they can seek out the Trust Protector to assist them. When this happens the trustee is not held liable if they follow that individual’s advice. This is important knowledge for any irrevocable trust, or a trust that may later become irrevocable.

What a Trust Protector Can’t Do

Now that you know some of the things a Trust Protector can do in order to guard a trust, let’s talk about a few things they can’t do. They cannot: 

• Make an irrevocable trust revocable, or a revocable trust irrevocable 
• Allow for illegal or improper activity as pertains to the trust
• Authorize trustees to take actions that go against the intent, spirit, or purpose of a trust

Now that you know what role a Trust Protector plays, it’s time to consider whether appointing someone to the role is right for you. If you have questions about working with a Trust Protector, reach out to our team. We look forward to assisting you!