When assets are placed into a Trust for benefit of someone (called the “beneficiary”), the terms of the Trust provide the guidance for what the Trustee can do or not do. The Trust’s terms may be broad and vague, or they may be quite explicit. More often than not, the Beneficiary is dependent upon the exercise of discretion by the Trustee, and cannot compel a distribution. These types of restrictions can protect the assets. When disputes arise between the beneficiary and the trustee, there can be a need for legal intervention to try to solve the problem.
Sometimes the beneficiary is aged or unsophisticated, and does not have the ability or the nerve to monitor what the trustee is doing. Sometimes the trust document doesn’t obligate the trustee to account or to provide records or reports to the beneficiary. This can leave a beneficiary without much legal protection. Who can watch out for the beneficiary when the trustee isn’t being accessible or cooperative?
The creator of the trust (the settlor or grantor) may want to designate someone as the Trust Protector. As the name implies, the Trust Protector is the watchdog. The Trust document can obligate the trustee to provide them with the financial statements, cancelled checks,income tax returns, disbursements, and correspondence received from beneficiaries. They can compare the disbursements to the requests that were submitted to the trustee by the beneficiaries. They can compare the disbursements made by the Trustees among a group of beneficiaries. They can even be given the power to replace a trustee if they feel the trustee isn’t fulfilling the intentions of the trust’s creator.
A Trust Protector can be written into a testamentary trust (created in a Will) or an inter vivos trust (created and funded during the settlor’s lifetime). A person who creates a trust for their own benefit (such as a revocable living trust or a special needs trust) might even want to designate a trust protector so that there is a separate person overseeing the trustee in case the grantor becomes incapacitated and dependent upon the trustee’s good graces. This arrangement can create useful checks and balances when the client has multiple children or when a client has become quite dependent upon one child. I have previously blogged about the concept of a “Power of Attorney Plus,” which is based on this same idea, and after having handled many family trust disputes over the years, I am coming to see the value in adding an extra person to the trust structure as well as extra transparency.
The Trust Protector provides an extra layer of oversight and protection. This can provide an extra measure of peace of mind to the person who is placing their assets under the control of a trustee or is making plans for the future protection of their family.
To discuss estate planning that is designed to meet your special needs, call 732-382-6070