Who Should Serve as A Trust Protector?
Denise of Merlin, Oregon, had posed a question regarding the definition of Trust Protector. We turned to Senior Counsel Sharon C. Nelson of Foley & Lardner, LLP, to help us with these issues.
...Technically, anyone can serve as a trust protector. However, in order to avoid adverse tax consequences (for both the grantor and the trust protector), it is generally advisable to name an independent third party as the trust protector. Trustees, beneficiaries or members of the donor’s immediate family are not independent parties and thus, should generally not be named as trust
protectors. Lawyers, accountants, unrelated business-minded friends, brothers, sisters, aunts and uncles of the grantor are often a good choice for the trust protector role. Corporate fiduciaries are not necessarily the best choice due to the conservative view of many corporate fiduciaries which may make it difficult for them to exercise the authority they are granted...
....While there is no set list of powers that should be granted to a trust protector, there are some powers that would be helpful in most situations that the grantor should consider. For example, the trust protector could be given the power to amend the trust to comply with new tax laws or to address any changes in the law or circumstances of a trust or its beneficiaries that would significantly change the tax treatment of the trust or its beneficiaries. In addition, the trust protector could be given the power to terminate the trust or to remove, add or replace the trustee. Other powers could include the ability to change the governing law or to expand or limit the powers of the Trustee. Some powers, however, such as the power to grant, expand, reduce or eliminate a power of appointment, the power to change, eliminate or add provisions regarding the disposition of income and principal or the power to change beneficiaries should be looked at more closely before including them because beneficial interests could be completely altered. Care should be taken to clearly define the purposes of the trust and to give the trust protector ample guidance as to what is expected and allowed and what is not...
We will conclude this review tomorrow.
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