All About the Trust Protector in Florida
Clients sometimes request irrevocable trusts for estate tax avoidance, creditor protection, or other purposes. Because of the loss of control associated with irrevocable trusts, clients often ask whether anything can be done to address future uncertainties.
One answer to this question is the use of a ‘Trust Protector’. Properly structured, a trust with a Trust Protector can be modified under certain circumstances. It should be emphasized, however, that a Trust Protector’s authority to modify an irrevocable trust must be very limited.
The Trust Protector role may also be used for other purposes, such as monitoring the work of the trustee, overseeing the investment of the trust assets, and other matters discussed below.
What Is a Trust Protector?
A Trust Protector is an individual or an entity identified in a trust to exercise certain powers. Trust Protectors, unlike trustees, are not required in any trust.
How Does the Trust Protector Relate to the Trustee?
Clients who create trusts are familiar with the concept of a trustee. Every trust is required to have a trustee to manage the affairs of the trust. The authority granted to the Trust Protector is separate, and more limited, than the authority of the trustee.
The trustee has general authority to manage the trust, including taking charge of the trust assets, paying trust expenses from the trust assets, dealing with third parties regarding trust business, distributing the trust assets to the beneficiaries designated in the trust, and similar matters. The authority of the trustee is described in the trust and in the law.
Unlike a trustee, there is no law requiring the Trust Protector to have any particular authority. Rather, the authority of the Trust Protector is limited to what is expressly stated in the trust instrument. For example, the trust may authorize the Trust Protector to:
- modify the terms of the trust to respond to changes in the tax laws, creditor protection laws and other laws applicable to the trust,
- change the state of domicile of the trust to a different state to take advantage of more favorable laws,
- review the actions of the trustee to ensure the beneficiaries are protected,
- remove trustees or appoint successor trustees,
- mediate disputes among the parties to the trust,
- advise the trustee on investment or other matters,
- resolve a deadlock between co-trustees, or
- resolve any ambiguities that arise in the interpretation of the trust.
How Is a Trust Protector Designated?
The trust instrument itself identifies the individual or entity that is to serve as the Trust Protector. In addition, the trust may also name other individuals or entities to serve as successor Trust Protectors. The successors would not have any authority to serve as Trust Protector unless the first Trust Protector named became unable or unwilling to serve as Trust Protector.
The same section of the trust that designates the individual or entity to serve as Trust Protector should also set forth the specific powers that the Trust Protector is authorized to exercise. As discussed above, there are no general powers inherent in the office of the Trust Protector. Accordingly, those powers must be expressly stated in the trust. The Trust Protector will not have any authority unless it is stated in the trust instrument.
How Do I Know if My Trust Has a Trust Protector?
The designation of the Trust Protector must be expressly stated in the trust instrument. To know if your trust has a Trust Protector, simply review the trust and look for terms designating a Trust Protector.
Note that the specific term ‘Trust Protector’ is not required. It may be that your trust has an individual or entity with authority equivalent to a ‘Trust Protector’, but the trust uses a different name – such as a trust advisor or a trust director. This is legally permitted.
What If a Trust Protector Makes a Mistake?
The trust may provide that the Trust Protector has a duty to restore any losses to the trust that result from misconduct or neglect of the Trust Protector. On the other hand, it may be that the trust does not include any such obligation. The person who creates the trust must decide whether to include this type of obligation.
In addition, Florida law will presume that a Trust Protector is a ‘fiduciary’ if the Trust Protector is authorized by the trust to direct the actions of the trustee. In this case, the Trust Protector will be required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries. If the Trust Protector breaches its duty, the Trust Protector may be held liable to pay for any loss that results from the breach.
Note that the terms of the trust may go beyond the requirements of Florida law. For example, the trust may require the Trust Protector to be financially responsible even if the Trust Protector does not have the authority to direct the actions of the trustee. The person who creates the trust will decide whether to impose additional obligations on the Trust Protector. This is not a simple choice, because an individual or entity named as a Trust Protector may choose not to serve if the position is overly burdensome.
I Was Named as a Trust Protector. What Do I Do?
First, read the trust instrument. You need to know what authority you have, what liability you have, and who the trustee and the beneficiaries are. You would be wise to retain legal counsel to assist you in these matters.
Second, decide whether you want to serve as Trust Protector. If you do not wish to serve, you should give written notice to the trustee and the beneficiaries. If there are special notice requirements in the trust, you should follow those requirements closely.
Third, if you do choose to serve as Trust Protector, serve diligently. It is difficult to give general advice about serving as a Trust Protector, because this advice necessarily depends on the authority you are granted. Some Trust Protectors are very busy overseeing the work of the trustee and the trust investments, while other Trust Protectors simply wait for a phone call from the trustee if certain events occur.
Trust Protectors are a useful resource to address matters that may arise during the administration of the trust. A Trust Protector may not be required in every trust, but they can be a lifesaver if situations change or unforeseen events arise.