The idea of a trust seems complicated, and we often think of them as something for only the super-wealthy. In reality, a trust is a relatively simple document: one person holds legal title to an asset for the benefit of another. A basic trust has four components:
- A settlor or grantor, which is the person who creates the trust;
- The trust and its assets;
- The trustee who controls the trust and its assets; and
- The beneficiaries who receive the benefits of the trust.
While, in theory, the trustee of a trust is reliable and trustworthy, sometimes you need another level of security. This protection is where a trust protector comes into play.
What Is a Trust Protector?
A trust protector can watch over the trustee and, if given the power, terminate a trustee for misconduct. While a trust protector is a concept fairly new to modern trusts, it also allows more flexibility for long-term trusts to adapt to changing laws or situations. A trust protector generally watches over a trust that will be in effect for a long time, to ensure that it is not adversely affected by legal changes or circumstances.
In addition to being a watchdog, the trust protector carries out specifically defined administrative and strategic duties for the trust that the terms do not reserve for the trustee, settlor, or beneficiaries. Some powers that trust protector can assume include:
- Veto or change investment decisions,
- Remove or replace a trustee,
- Resolve disputes between the beneficiaries, or the trustees, or the beneficiaries and trustees,
- Change trust distributions based on the life circumstances of the beneficiaries,
- Add additional beneficiaries if new descendants are born,
- Permit amendments to the trust to account for changes in the law
Texas law limits the role of trust protectors to:
all the power and authority granted to the protector by the trust terms, which may include:
(1) the power to remove and appoint trustees, advisors, trust committee members, and other protectors;
(2) the power to modify or amend the trust terms to achieve favorable tax status or to facilitate the efficient administration of the trust; and
(3) the power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the trust terms.
Texas Prop. Code § 114.0031 (2019).
As a result, it is essential to ensure that the trust document is explicit about the powers a trust protector will hold. An experienced trusts and estates attorney can help you define these duties and ensure that the trust protector does not have too much power.
When Do You Need a Trust Protector?
It is a good idea to consider a trust protector if your trust will be in effect for an extended time. A trust protector can also be useful if you believe there may be conflicts between the trustee and the beneficiaries. The trust protector can also serve as back-up oversight if you do not entirely trust your trustee to follow your wishes.
If you are creating or revising an estate plan, Hegwood Law Group can help with comprehensive estate planning services. Call us at (281) 885-8826 to find out how we can help, or click here to schedule your strategy session today!