What is a Trust Protector, and Do I Need One?

There are three essential parties to every trust agreement:

1. The Settlor – the person who sets up the trust;
2. The Trustee – the person who manages and invests the trust funds and administers the trust; and
3. The Beneficiary – the person to whom the Trustee distributes the trust funds in per the terms of the trust

The Settlor is responsible for the terms of the trust and for placing assets into the trust. The Trustee is responsible for understanding the terms of the trust and administering the trust on behalf of the Beneficiary (i.e. paying bills, filing tax returns, preparing accountings, investing the trust funds, and making distributions). The Beneficiary reaps the Benefits of the trust.

The same person can hold all three roles in a trust, or each role can be filled by a different person. What’s more, it’s becoming more common for a trust to include another role, that of the Trust Protector.

Modifying a Trust After You Die

When you are the Settlor of a revocable trust, you have the right to modify the terms of the trust. But when you die, that right dies with you and the trust becomes irrevocable.

Irrevocable trusts are not truly irrevocable, because the Trustee and Beneficiaries always have the right to go to probate court and ask a judge to modify the terms of the trust. But going to probate court to modify a trust when needed, is not ideal.

To begin with, what happens in probate court is a matter of public record, and you may not want to share your family business with the rest of the world. Furthermore, going to probate court can be very expensive. Finally, probate is unpredictable because you never know what the judge might decide to do. The judge may deny your request to modify the terms of the trust, and you will have spent a great deal of money for nothing.

But, wouldn’t it be great to be able to easily modify the terms of an irrevocable trust as circumstances change, so that it continues to comply with the Settlor’s intent? Wouldn’t it also be great to have this functionality included in the terms of the trust to avoid having to go to probate court?

This is where a Trust Protector comes into play.

What is a Trust Protector?

A Trust Protector is a concept that comes from the world of international asset protection. In these cases, the Settlor might understandably be worried about giving a Trustee who is located in a distant jurisdiction control over their wealth, without some kind of oversight. Thus, the role of the Trust Protector was created.

A Trust Protector is an independent party, meaning neither the Trustee nor a Beneficiary, who has been appointed by the Settlor to oversee the management and distribution of the trust assets and to ensure that the trust continues to do what the Settlor intended it to do.

The Trust Protector steps in when there is an issue that needs to be addressed, evaluates the situation, decides what needs to be done, and makes the appropriate changes to the trust. Most importantly, because the Trust Protector steps into the shoes of the Settlor, he or she can do all of this without the need for any court action.

What Powers Does the Trust Protector Have?

The powers granted to a Trust Protector are specified in the trust document and may vary significantly. Generally, however, Trust Protectors typically perform the following two functions:

1. Monitoring the activities of the Trustee. This means that the Trust Protector is granted powers to carry out this monitoring, i.e. the power to remove (and possibly replace) a Trustee who is not performing well, or who is simply not acting in the best interest of the Beneficiaries; and
2. Carrying out tasks that the Settlor cannot do personally because of legal prohibitions, tax consequences, incapacity, or death.

The Trust Protector also ensures that the intent for the trust is carried out in cases when:

• The trust is irrevocable; and
• The Settlor of a revocable trust has died, and a Beneficiary needs to be added or eliminated

Some examples of tasks performed by the Trust Protector are as follows:

• Correcting any problematic errors in the trust document;
• Modifying the trust terms due to changed circumstances;
• Adding or eliminating a Beneficiary due to the birth or death of a child, grandchild, etc.; and
• Resolving issues between Beneficiaries, or between Beneficiaries and the Trustee

A Trust Protector can also move a trust fairly easily from one state to another, or change the governing law of the trust. These are all things that we would not empower a Trustee to do, but that we would want to empower a Trust Protector to do.

What Happens If I Don’t Have a Trust Protector?

Without a Trust Protector, the Trustee often has no choice but to go to probate court to make modifications to the trust when needed. But for many, going to court goes against the very reason why the trust was set up in the first place, which is to avoid probate.

By appointing a Trust Protector, you have someone to oversee the performance of the Trustee after you die or become incapacitated, and to ensure that the trust continues to comply with your intent. What’s more, whatever changes to the trust documents that need to be made, can easily be done without the hassle, expense, and publicity of probate court.

Contact an Experienced Virginia Estate Planning Attorney

For more information regarding Trust Protectors in Virginia, and for assistance with determining whether or not you can benefit from appointing one to oversee your trust, contact Speedwell Law at (703) 553-2577 or use the contact form on our website to arrange a consultation with an experienced Virginia Estate Planning attorney.

The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.