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Trust Protector – A Role For The Professionals?

Trust Protector – A Role For The Professionals_
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Trust Protector – A Role For The Professionals_

Although not compulsory, the appointment of an appropriate Trust Protector is becoming increasingly relevant as the application of trusts for estate planning and asset protection evolves.

The concept of a Trust Protector is not new in the international asset protection and planning field, originally coming to prominence where Settlors who created Trusts in overseas jurisdictions were concerned about relinquishing unfettered control to overseas Trustees. To address such concerns, common powers bestowed on the Trust Protector included the power to change the jurisdiction of the Trust or to remove the Trustee.

The Protector role carries importance not always fully reflected in the person(s) chosen by the Settlor to perform this function. Taking care to avoid a potential conflict of interests, a close family friend or other associate was often chosen to fulfil the role, and in many instances, their knowledge of trusts and related matters was somewhat limited.

With ever-evolving trust laws, coupled with increasing complexity and sophistication in this field, prudent Settlors and their advisors are increasingly turning to professional Trust Protectors to fulfil this important role.

Related: What Are Trust Protectors? 5 Commonly Asked Questions Answered

Professional Protector Services

In such a scenario, a Settlor would typically appoint a professional Trust Protector where s/he requires a third-party individual or entity to oversee the actions objectively of the Trustee and amongst other things, retain certain powers such as the ability to remove and replace Trustees, terminate the Trust or veto distributions.

When complex issues arise which require action by a Trust Protector, an experienced and knowledgeable professional Trust Protector will be well placed to address such issues and provides comfort for the Settlor as well as acting as a valuable point of contact between the beneficiaries and the Trustee. Indeed, where complex matters arise requiring Protector involvement, it is of considerable benefit to the Trustee if an experienced professional Protector is in place.

Related: Protector & Trustees - The Relationship

Typical Powers Of A Trust Protector

Trust Protector powers may include the following as appropriate for the circumstances and/or in accordance with the terms of the relevant Trust deed(s):

  • Remove and replace Trustees;
  • Terminate the Trust;
  • Veto distributions;
  • Change situs of administration and governing law;
  • Amend administrative provisions of a Trust;
  • Resolve Co-Trustee deadlocks;
  • Mediate disputes between Trustees and Beneficiaries;

Notwithstanding the broad range of potential power, it is important to ensure that the role and function of the Protector do not veer into the territory of ‘de facto Co-Trustee’.

Related: Settlors’ & Protectors’ Control Over Trust Assets

6 Benefits Of A Professional Trust Protector

1. Risk

Trust structures can be very complex and accepting the role of Trust Protector may carry the risk of potential exposure and related liabilities where the role is not fully understood.

2. Expertise

With a professional Trust Protector, the parties to the Trust will benefit from a team of highly skilled professionals with the requisite legal, financial and Trust administration expertise who are focused on the proper administration and success of the Trust for the benefit of the beneficiaries.

3. Counsel

Professional Trust Protectors can work alongside other co-Protectors, protector committees etc. as well as acting as third-party counsel to individual Protectors who may lack expertise and resources in certain areas of Trust administration. This enables the non-Professional Protector to fulfil their obligations and mitigate against potential liabilities associated with the role.

4. Control

An independent Professional Trust Protector can be beneficial for a variety of planning and related taxation reasons, potentially eliminating any unintended taxes or loss of certain related exemptions. Also, where a family member of the Settlor or other 'connected person acts as Trust Protector, this may trigger unintended compliance obligations.

5. Continuity

A corporate professional Trust Protector ensures succession and continuation in the role of the Trust Protector following the death of the Settlor or a natural living Protector. This is particularly important for Dynastic Trusts and other trusts with long perpetuity periods which will inevitably extend beyond the lifetime of any natural Protector.

6. Foreign Trust Protector

It may be desirable to appoint a Trust Protector who is resident outside of the jurisdiction where the Settlor is resident, or outside the jurisdiction where the Trust itself is created. For example, US Foreign Trusts generally apply a control test (in order to be deemed a foreign Trust) which will typically be satisfied where a non-US Protector (who holds certain specified powers) is appointed.

Advantages and benefits of Trusts - webinar

 

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