Estate Planning

Why Use a Trust Protector?

By Gregory Herman-Giddens

The use of Trust Protectors is becoming increasingly common, particularly in irrevocable trusts that may last for decades, if not generations.  A Trust Protector is generally an individual, often an attorney, cpa or family member, who is given certain powers over a trust by the trust grantor.  These powers can provide increased flexibility and protection for the benefit of the trust beneficiaries.

Here are the most common specific reasons to use a Trust Protector:

1. To allow a trust to be amended to take advantage of changes in the law.
2. To allow removal and appointment of a trustee.
3. To have an independent party to exercise distribution powers when the trustee is also a beneficiary.
4. To allow amendments to comply with tax law provisions to maintain or increase tax advantages to a trust.
5. To provide for management of special trust assets.
6. To provide for removal of trust assets from a creditor jurisdiction (in offshore or domestic asset protection trusts).
7. To allow change in the governing law or tax situs of the trust.
8. To allow addition of additional beneficiaries (such as new descendants).
9. To make certain tax elections.
10. To "watch over" the trustee.

I generally do not recommend choosing a family member as a Trust Protector, because, depending on how close the kinship is, a family member serving in that role could create income and estate tax problems due to attribution rules.  Also, family members rarely have the expertise needed to make and carry out the necessary decisions.

Attorneys and CPAs may be wary of serving due to concerns about liability.  Corporate fiduciaries may have the same concern, and are not set up to serve in that capacity.  One alternative is to use a specialty Trust Protector firm such as TrustProtector, LLC.

Full post as published by North Carolina Estate Planning Blog on May 01, 2009 (boomark / email).