WHAT IS A TRUST PROTECTOR?

Uniform Directed Trust Act: The California Uniform Directed Trust Act (“UDTA”) came into effect January 1, 2024; amending California Probate Code by adding Sections 16600 through 16632, explicitly authorizing the use of directed trusts. A directed trust allows persons establishing trusts (often referred to as settlors) the ability to assign traditional trustee duties and liabilities to an individual other than the trustee. In other words, the trust document can instruct the trustee to follow the direction or consent of a third party – sometimes referred to as a trust protector, trust advisor, trust director, including a trust committee. This type of arrangement allows for stronger management and oversight while the trust is being administered. The UDTA adds rules related to the powers of direction, a trust director’s duties and liabilities and a directed trustee’s duties and liabilities, including provisions that are not subject to the directed trust rules unless the terms of the trust provide otherwise. Including a Trust Protector: While not every trust warrants the use of a trust protector, they are becoming more common given the increased sophistication and complexity of trust investment and administration. Settlors wanting to add privacy to trust matters, reduce future court involvement, or who are sensitive to tax issues are prime candidates for a directed trust. It has been stated that the use of directed trusts is only limited by the imagination of the settlor and his or her attorney. Some of the powers granted to a trust protector may include, but are not limited to, the following.

• Modifying the trust instrument for purposes of correcting mistakes;
• Modifying the trust to take advantage of tax laws, or to comply with changes in the tax laws;
• Interpreting the terms of the trust and advise the trustee and beneficiary of the same;
• Terminating a trust;
• Dealing and advising with special assets;
• Altering a beneficiary’s interest in a trust;
• Limiting authority of trustee;
• Removing or replacing a trustee;
• Adding or removing a beneficiary;
• Interpreting the rights of a beneficiary;
• Granting, modifying, or revoking a beneficiary’s power of appointment;
• Changing the distribution standard; and
• Arbitrating disputes between trustees and beneficiaries, or among beneficiaries.

For any type of long-term trust planning, a trust protector can help a family avoid probate court, effectively saving the family valuable time and resources, and maintaining the privacy of the family matter. Individuals Whom May Act as Trust Protector: The criteria on who may serve as a trust protector can be fairly stringent depending on the powers granted to the protector under the trust instrument. Often, the trust protector is the attorney who drafted the trust, including a succession of lawyers within a firm to account for the eventual retirement of the attorney. However, a trust protector does not need to be an attorney, but should be 1.) a third party to the trust and not a settlor, trustee, or beneficiary; 2.) a person who is not related, subordinate to, or employed by the settlor; and 3.) an individual whom is able to perform the functions memorialized in the trust instrument. Including a Trust Protector in your Estate Plan: At Kirk & Simas, it is our default policy to recommend a trust protector for most complex estate plans. In the case of a more simplified estate plan, such as a trust which directs the trustee to sell all of the trust owned assets and immediately divide the proceeds among beneficiaries, a trust protector may not be needed. In cases where inheritances are to be paid out over some lengthier time period, the potential safeguards and benefits of utilizing trust protector are too important to overlook. Conclusion: Putting a thoughtful and integrated estate plan in place is paramount to taking care of loved ones and ensuring your wishes are carried out exactly as you desire. Our estate planning attorneys are here to assist with clarifying and refining your wishes in addition to addressing desires that can potentially contradict or thwart one another.