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What is a Trust Protector? Are They a Fiduciary?

 

In trust law, a Protector is a person appointed under the trust agreement to direct or restrain the trustees in relation to their administration of the trust. Historically, the concept of a Protector developed in offshore jurisdictions where settlors were concerned about appointing a trust company in a small, distant country as sole trustee of an offshore trust which is to hold a great deal of the settlor’s wealth. However, Protectors have now moved into the mainstream of more trust agreements.

Do they have fiduciary responsibilities? And what is a fiduciary? A fiduciary is an individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit. The duties of a fiduciary include loyalty and reasonable care of the assets within custody.

In Jay Adkisson‘s 2012 article “Trust Protectors — What They Are And Why Probably Every Trust Should Have One”, he states the original idea behind the Protector is to have somebody who can watch the Trustee and terminate the Trustee for any misconduct. Originally that was the only power the protector had: fire the Trustee. Then additional powers were bestowed on the Protector in trust agreements.

Adkisson cautions that if one starts giving the Protector too many powers, they become seriously at risk of being deemed a de facto “Co-Trustee”, with all the fiduciary duty baggage that carries. With Protector provisions, simpler is better. A Protector provision should ideally just have three sections:

  1. Empowering the Protector to terminate the Trustee;
  2. Empowering the Protector to appoint successor Protectors; and
  3. Explicitly stating that the Protector is not a Trustee and owes no fiduciary duties to anybody or has any duty-to-act.

In Adkisson’s recent article in Forbes.com, he raises the question as to whether the trust protector as a fiduciary is a bad idea.

Adkisson’s position is the Trust Protector should not have fiduciary duties, which means that the Trust Protector should be able to exercise wholly independent discretion to fire Trustees without worrying about whether the Trust Protector will be sued by somebody.

If a drafter of a trust agreement is going to make the Trust Protector a fiduciary, then those fiduciary duties need to be clearly and specifically set out — otherwise, the Trust Protector has the potential to be sued if anything goes wrong with the Trust even if the Trust Protector did not know about it, which is another way of saying that here the Trust Protector was implicitly charged with reviewing every slight thing that went on in the Trust.

The inclusion of a Protector in a trust can often avoid expensive and time-consuming court proceedings if their powers are properly and clearly stated. There is some confusion as to whether they in fact have any fiduciary responsibilities.

The word is caution. If you are agreeing to be a Trust Protector, know where you stand. Are you a fiduciary without any fiduciary protections under the trust?

 






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