You are probably familiar with the basic roles of people connected to a trust. The trustee manages the trust assets for the benefit of the beneficiaries, according to the directions put in the trust agreement by the person who set up the trust (who is the grantor, settlor, or trustor). A relative newcomer to this scene is the “Trust Protector.”
The Trust Protector is someone appointed by the grantor to oversee the actions of the trustee without being involved in the day-to-day operations of the trust. The Trust Protector assures that the trust serves its intended purpose.
Here are the kinds of tasks a Trust Protector may be assigned in a trust according to NC General Statutes Section 36C-8A-2 (which calls a Trust Protector a Power Holder):
- Settling disputes between co-trustees
- Removing or replacing trustees
- Approving or vetoing distributions, or modifying them if a beneficiary’s circumstances change (e.g., disability, substance abuse or recovery from the same)
- Approving or vetoing a trustee’s investment decisions or decision to sell an asset, and
- Modify the trust if the law changes, e.g., to take advantage of changes in tax law.
The Trust Protector is a fiduciary, meaning that they have the legal obligation to put the interests of the trust first. They cannot use their position to benefit themselves (although, if they are a beneficiary, they can receive whatever the trust agreement already grants them).
One useful role for a Trust Protector is as a backstop for the trustee in deciding on discretionary distributions to problem beneficiaries. If a trustee must get the approval of a Trust Protector to making a distribution to a beneficiary with an addiction problem or in the midst of a divorce, there is a double-check on the decision.
In blended families, a Trust Protector can oversee the decisions of a surviving spouse-trustee. This is helpful where the trust’s intent is to balance adequate support for the surviving spouse with preserving some trust assets to go to the next generation after the surviving spouse dies.
A Trust Protector may be tasked with overseeing the management of special assets, such as a family homeplace. The Trust Protector could have authority to make decisions about repairs. They could veto a sale or mortgage by the trustee if the Trust Protector felt that was contrary to the intent of the trust.
The key to making good use of a Trust Protector is careful and clear drafting in the trust agreement. The Trust Protector may be given some or all of the powers listed in the statute.
The advantage to having a Trust Protector is that they can give a desired check and balance to the trustee’s powers, and can give the trust greater adaptability. The disadvantage is that this adds complexity to your trust plan. If you have confidence that the skills and personality of your trustee are a good match for what they are asked to do with the trust, the Trust Protector may be unnecessary. With proper drafting, you can give the trustee many of the same tools of adaptability that a Trust Protector has. In blended families, simpler alternatives may meet the need, like life insurance naming adult children as beneficiaries. My advice is to use a simpler approach and skip the Trust Protector wherever you can, but to appoint a Trust Protector when the need for one outweighs the benefits of simplicity.
Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough. She can be reached at (919) 732-7300 or email@example.com.