You are one of three adult children. Your widowed mother is changing her trust. She will divide her property equally among you, your sister and your older brother. However, she feels your older brother will never be able to handle money responsibly so she has decided to keep his share in trust for his lifetime with distribution of income and principal to your brother under specific circumstances outlined in the trust. The balance of your brother’s share, after his death, will pass outright to his children when they are adults. One of the assets in trust is a family business entity, and while your mother wants your older brother to receive a share of the distributions equally, she does not want him to know too much about the business itself. She recognizes the “strain” it will put on your relationship if she makes you the successor Trustee, so she has selected a non-family member individual Trustee, and, in the alternative to this individual, a local bank with appropriate trustee powers under Florida law. Your mother asks you, as her most responsible child, to be the Trust Protector to “oversee” matters for the family and assures you it won’t take too much of your time. Should you say yes? Before you agree, you should have a full discussion with your mother as to your role and request to see the trust document to ascertain, in advance, your responsibilities and the safeguards, limitations and protections provided to you as the Trust Protector.
A Trust Protector is not the Trustee, but instead is a person who either advises or oversees certain aspects of the Trustee’s duties and who is sometimes given powers that a Trust Settlor does not want to give to the Trustee. Florida does not prohibit the use of Trust Protectors, but only includes a minimal amount of statutory guidance for one type of Trust Protector, a “Designated Representative” who may bind a trust beneficiary or receive notices, information, reports and accounts on a beneficiary’s behalf. In Florida, the trust document itself governs the duties of a Trust Protector and in some cases those duties can be so broad as to effectively make the Trust Protector a co-Trustee without the liability protections afforded the actual Trustee under Florida statutes.
You may be comfortable if your role is simply to advise the Trustee of the personal family relationships between you and your siblings, or change the place of administration, or change the Trustee for your brother’s continuing Trust to another independent Trustee, or even select your own successor Trust Protector. However, you may not be comfortable in having the power to tell the trustee to withhold a distribution or deny a principal request of your brother, or the power to eliminate him as a beneficiary. In fact any of those powers, if exercised, depending on the circumstances, could potentially have adverse tax consequences for you personally.
Trusts have become more prevalent in recent years as an estate planning mechanism to preserve and distribute wealth, and the trust administration rules have become more complicated. As a result, it is increasingly imperative in the most sophisticated cases for parents to have full and candid communications with their children as to the terms of their trust, the reasons certain distributions will be made (or trusts continued), and the role of each child (if any) in the trust administration process, whether as a successor Trustee, a Trust Protector or a future beneficiary. Such discussions in advance can avoid hurt feelings and misunderstandings that can lead to expensive litigation after a Settlor’s death.
This article only addresses some of the issues involving Trust Protectors. If you have specific questions, please call any lawyer in our estate planning group and we will be happy to assist you.