Attorneys are constantly trying to develop new and improved strategies for their estate-planning clients. Some of these strategies are the result of good ideas and creativity, while some strategies are a necessity of changes in the law. One strategy that developed out of a good idea is a concept called a trust protector.
Explaining what a trust protector is and does might be easiest using an example. A farmer establishes a trust for his farm succession plan. The farmer’s goals for his trust are to minimize estate taxes, avoid probate and provide for a smooth transition of his farm to his children.
A few years after establishing the trust, there is a major change in tax law that will affect the farmer’s estate taxes. The farmer knows he needs to update his trust to reflect the new tax law, but just does not get around to it. Before the farmer changes his trust, he dies. After the farmer dies, his trust becomes irrevocable and cannot be changed to reflect the tax changes, and his heirs pay unnecessary estate taxes.
A second scenario uses the same facts as the first scenario, except that the farmer’s trust implemented a trust protector. In this scenario, the trust protector was able to amend the farmer’s trust after he died to reflect the tax changes.
The trust protector knew one of farmer’s goals was to minimize estate taxes. Therefore, the trust protector was authorized to change the farmer’s trust to minimize estate taxes under the new tax changes.
Protecting trust intent
A trust protector’s role is to generally make sure the trust works as the person intended. That is, the trust protector protects the intent of the trust. The trust protector is created by the trust document itself. The trust document must expressly provide for a trust protector before the person dies.
The trust protector does not have unlimited power. The trust document that creates the trust protector also limits the authority. Typically, a trust protector cannot change the distribution plan of the trust. When a person dies, whatever the trust says about which person gets what asset will happen even if the trust has a trust protector.
An exception is a trust protector may clarify any ambiguities or errors in the trust. For example, the farmer’s trust provides for his daughter to receive his 80-acre farm known as Grandma’s Farm. When the farmer dies, he owns two 80-acre farms, one known as Grandpa’s Farm and one known as the Smith Farm. The trust protector can correct the obvious error to make sure the daughter receives Grandpa’s Farm, but cannot change the trust so that daughter receives the Smith Farm.
Someone must be selected as a trust protector when drafting the trust. The trust protector should be an independent person and not one of the beneficiaries of the trust. The attorney drafting the trust is often a good candidate for the trust protector since he or she should know the intent of the client and thus make sure the trust works as intended.
Other candidates for trust protectors may be friends or family members not receiving under the trust. Whoever is selected for the trust protector, they should have an understanding of the goals of the person creating the trust.
If your current trust does not contain a trust protector, an amendment can be made to add the trust protector provisions. It is usually fairly easy to add a trust protector to an existing trust. Contact your attorney if you want to add a trust protector, or check to see if you already have one. Having a trust protector for your trust can be very beneficial and save your beneficiaries time and money someday.
Moore is an attorney with Wright & Moore Law Co. LPA. Contact him at 740-990-0751 or [email protected].