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WHY HAVE A TRUST PROTECTOR?

12February
2015

Many trusts being established today will continue over a span of several generations. Consider how much things have changed just in the past 50 years, and the fact that it is now good policy to have trusts updated every few years.  It is easy to imagine that a trust written today may be difficult to interpret or  problematic in another 50 years.  Yet many estate plans contain trusts that will continue for the benefit of a spouse’s lifetime and then for the benefit of heirs for multiple decades. Therefore, it is important to include a trust protector provision to allow the appointment of someone who will have the ability to adjust the trust provisions circumstances, beneficiaries, and governing laws change.

What is a Trust Protector?

Trust protectors are created by statute in Arizona, A.R.S. 14-10818. A trust protector is an individual or group of individuals who are given the power to insure that the purposes and goals of the creator of a trust are ultimately fulfilled. Generally the trust protector may be a family member or friend (typically someone who is not a beneficiary or trustee of the trust), an unrelated trusted advisor, or a group of these individuals acting by majority or unanimous agreement. The choice of who to name as the trust protector will depend on the trust creator’s wishes and the intended duration of the trust.

What Powers Should a Trust Protector Hold?

A trust protector can be given as few or as many powers as the trust creator desires. While it may be tempting to give a trust protector a wide array of powers to deal with every possible future circumstance, the trust creator should carefully consider the specific purposes and goals for their trust and only give the trust protector powers that will further those purposes and goals.

Regardless of a trust creator’s intent, below are three powers that all trust creators should consider giving their trust protectors, although Arizona provides a wider expanse of powers:

  1. Power to Amend Trust Provisions. Some irrevocable trusts that are intended to continue for multiple generations begin as revocable trusts that only become irrevocable after the trust creator dies or at some other time in the future. If the trust creator fails to update the trust due to changes in circumstances, beneficiaries, or governing laws while the trust is still revocable, a trust protector can fix these issues after the trust becomes irrevocable.
  1. Power to Add, Remove and Replace Trustees. Giving this power to the trust beneficiaries may defeat the trust creator’s intent since the beneficiaries may be inclined to hastily remove a trustee who does not give in to their each and every request. Instead, a trust protector can take an objective look at the trustee’s actions or inactions and determine if the trust creator’s intent is being fulfilled or derailed.
  1. Power to Change Trust Situs and Governing Law. Since it is impossible to predict where the beneficiaries and trustees of an irrevocable trust will live in the future, this power is critical to insure that the trust will continue for as long as the trust creator intended and with minimum tax consequences. Giving this power to the trust protector will allow an objective party to determine if the change will be beneficial or is necessary.

Final Thoughts on Trust Protectors

Including a trust protector in an irrevocable trust agreement or a revocable trust agreement that will become irrevocable at some time in the future is critical to the success and longevity of the trust. Nonetheless, the trust protector should only be given powers that will insure the purposes and goals of the trust creator are ultimately fulfilled.

If you are interested in adding a trust protector to your trust or would like to have the trust protector provisions of your trust reviewed, please call our office.

Posted in estate planning, marriage, trusts, wills |