Trust Protectors: Rescuers for Irrevocable Trusts
“Gotham is in danger!” cries the Commissioner. “Call for …The Protector!” That’s not exactly how it works, but there is a sense in which the Trust Protector does come to the rescue in certain cases. The Trust Protector’s purpose is to guide the trustee to make the right decisions and make sure the grantor’s intentions are carried out. Not high drama, but pretty important nonetheless.
A Trust Protector is appointed by the grantor of the trust, or sometimes by a committee, to take care of issues that the trustee, the grantor, and the beneficiaries themselves are unable to deal with. Here are some examples (all in a day’s work, ma’am):
9:00 AM – Putting Up Barriers to the Fire at Amazing Speed
The grantor of the trust allowed for “separate trusts to be established for each beneficiary” after her death, to defend against “possible debt, divorce, disability, and destructive spending” of the beneficiaries. She didn’t want anyone with a conflict of interest signing these trusts. A job for the Trust Protector, who carries it out in one hour flat.
10:30 AM – Saving Homes from the Flood
The grantor has made her intentions clear that she wants to protect her beneficiaries after she dies. One beneficiary risks losing his trust to a divorcing spouse, another to bankruptcy, another to foolish spending. The Protector saves all their assets under his power “to appoint an independent trustee with absolute discretion whether to distribute all or nothing at all” – the perfect foil to misery and loss for the beneficiaries.
12:00 PM – Saving the Beneficiary from the Crumbling Building
The protector is requested to clarify a term of the document. For example, a trust was intended to flow to relatives, including cousins, but the wording chosen was “next of kin” which would only have allowed the trust to go as far as siblings. Knowing the intention, the Trust Protector amended the document to make the change to add “of any degree” after next of kin, allowing cousins and even more distant relatives to benefit, as intended, making for happy campers.
1:30 PM – Preventing Pillaging by the Invading Army
The trust’s tax clauses, as written, will result in higher estate taxes than should be necessary. Reading the grantor’s intention to “minimize taxes” and permitting the Trust Protector “to respond to changes in the tax code,” the Protector amends the trust to save thousands in taxes.
3:00 PM – Stopping a Nuclear Disaster
The grantor has left an IRA to his trust. This presented both a tax and an asset-protection problem. Under the SECURE Act, the IRA must be doled out to the beneficiaries, out of the trust, all within 10 years. The Trust Protector has authority “to amend the trust to effectuate the grantor’s intentions,” to protect assets and lower income taxes. The Protector amends the trust to allow for the “accumulation” of the IRA withdrawals preventing them from passing to the waiting creditors and predators of the beneficiaries. The protector fixes a related provision, preventing income taxation “at the trust level” which is much higher than the beneficiaries’ tax rate: A narrow escape from sure death for the beneficiaries.
4:30 PM – Saving First Responders
The trustees are the first line of defense in any situation. They try hard to do their job, act in good faith, and do the right thing. Once in a while trustees are confused and have doubts on their course of action. If they seek the opinion of the Trust Protector, they will “not be liable for following the Protector’s advice.” Way to save the trustees, Protector!
This power should be considered for any irrevocable trust or one that will become irrevocable at a later date. That said, Trust Protectors can neither make a revocable trust irrevocable, nor an irrevocable trust revocable. They cannot allow for any improper activity, break any laws, or authorize a trustee to do something that would be against the purposes and spirit of the trust.
As a Trust Protector, my cape isn’t red. It’s more like black ink on white paper.
Don’t have to thank me. Just doing my job.
These fearless heroes protect all types of irrevocable trusts. Learn more about them in our article, “Irrevocable Trusts: What Are They and How Are They Used?”
True believers can find even more heart-pounding action in our free ebook, “superTRUSTpowers,” available at your local comic rack and downloadable right here.
