As mentioned in a prior post, nowadays many of my clients choose to leave assets to their loved ones in a Bloodline (a/k/a Dynasty) Trust. As mentioned in that prior post, leaving an inheritance this way has tax benefits and also protects the assets if a child later gets divorced.
Many of these clients also want to keep the Bloodline Trust flexible, to easily adapt to changing circumstances generations down the line. One method of accomplishing this flexibility is through use of a Trust Protector.
A Trust Protector is someone who can make changes to the trust without the trust losing its protective qualities. For instance, in trusts I draft, I usually give a Trust Protector the following powers:
- The power to remove the trustee of the trust (unless the primary beneficiary is acting as his own trustee). In the event a beneficiary chooses someone other than himself to be trustee of his trust, this provision makes it easy to get rid of that third party trustee later if the beneficiary is unhappy with the trustee’s performance.
- The power to make administrative changes to a trust if required by a corporate trustee. While not required, for some larger Bloodline Trusts a beneficiary may choose to have a bank or trust company act as trustee if the beneficiary does not wish to be trustee himself. Banks and trust companies usually require special administrative provisions in the trust document before accepting appointment as trustee. This provision allows the Trust Protector to add these provisions without seeking court approval.
- The power to change the state law under which the trust is administered. This can be useful if beneficiaries move.
One objection to Trust Protectors is often that they add another level of complexity and expense to the trust. To overcome this downside, I usually draft trusts where the office of Trust Protector is by default vacant, meaning no additional complexity or expense is involved. The primary beneficiary of a trust only needs to appoint a Trust Protector to fill the vacancy if one becomes needed someday. This allows the beneficiary to appoint a trusted attorney or friend if the need arises.
Any sort of Trust Protector setup requires assistance of a qualified attorney. Contact me if you’d like to move forward with such a plan.