In a previous blog we examined the role and powers of trust protectors. We will now examine the relationship between protectors and trustees.
In recent years, settlors are increasingly appointing protectors on the settlement of trusts. There are a number of reasons for such an appointment:
- They may have yet to build a relationship with the proposed trustee;
- They wish to safeguard their wishes on settlement of the trust; and
- To oversee the proper administration of the trust.
Bridging The Gap Between The Settlor & Trustee
Trusts are often settled in jurisdictions other than that of the settlor. Consequently, there may not yet be a strong level of trust built up between the trustee and the settlor at the time of settlement. In this instance, a protector is often appointed as a means of providing peace of mind to the settlor. Having appointed a protector, a settlor has a party in place that, depending on the powers conveyed on the protector by virtue of the Deed of Settlement, has a certain level of oversight on the administration of the trust.
Safeguarding The Administration
The specific powers granted to trust protectors will vary from trust to trust. These powers may be granted with a view to safeguarding the proper administration of the trust.
For example, a protector may be given the power to authorise any proposed changes or amendments to the trust. Similarly, the removal or addition of beneficiaries may require protector authorisation.
To Oversee The Administration Of The Trust By The Trustee
An important power which may be granted to a protector is the power to remove and replace the existing trustee. The trustee is therefore somewhat answerable to the protector, insofar as the trustee must be seen to be fulfilling his/ her mandate to act in the best interests of the beneficiary/beneficiaries and to properly take into account the wishes/intentions of the settlor.
Understanding The Terms Of The Relevant Trust Instrument
The relationship between the trustee and the protector is an important one for the efficient administration of a discretionary trust. While the protector has a certain amount of oversight, it should not be given overreaching power to disrupt the work of the trustee.
In circumstances where significant influence over the trust fund has vested in the protector (powers which would normally be within the scope of the trustee), it may be deemed that the protector is the de facto trustee of the trust. If this occurs, the protector may become liable for the tax and jurisdictional liabilities that accompany the responsibilities of the trustee.
As a result, care should always be taken to review and understand the terms of the relevant trust instrument whether you are a trustee or a protector. Specialist advice should always be sought.