The Role of Trust Protector in Elder Docx Documents

Jan 27, 2022 12:37:00 PM


The Role of Trust Protector in ElderDocx® Documents

Elder Docx is a powerful document drafting system. Within the system, you can draft many legal documents related to elder law, Veterans benefits law, and special needs law – a Standalone Will, Revocable Living Trust, Medicaid Asset Protection Trust, Veterans Asset Protection Trust, First-Party Special Needs Trust, Third-Party Supplemental Needs Trust, and so much more.

Within these documents, you have the option to include a Trust Protector. Who can serve in this role, what does that person do, and why would you want to include a Trust Protector? Let’s dive in.

The person serving as Trust Protector can be a corporate fiduciary or individual. In either case, the person cannot be related or subordinate to a transferor or any beneficiary, within the meaning of Section 672(c) of the Internal Revenue Code. Meaning, the Trust Protector must be an independent party. The reason for requiring an independent person to serve as Trust Protector is to avoid certain undesirable taxation consequences, issues with Grantor trust status, and power of appointment issues. However, a possible future update to Elder Docx may allow an interested person to be appointed with limited powers, or with the additional power to appoint an independent party to handle matters that require such.

Sometimes it is difficult to find an independent person to serve as Trust Protector. Clients may use a family friend, hire a retired accountant or attorney, use the drafting-attorney’s firm, or use a corporate fiduciary. If there isn’t a person to name to the role when drafting the trust, a Trust Protector Designator can instead be named and this person can later identify and name the Trust Protector, as needed.

A Trust Protector can carry out several important acts:

  • Remove and replace trustees
    The Trust Protector acts as a system of checks-and-balances. The trust protector can work to resolve an issue with a trustee and can remove and replace that trustee if needed. There are interview options to except certain folks (such as the spouse or descendants of the Grantor) from the removal power of the trust protector.
  • Appoint an independent special trustee
    For example, if there is an interested trustee serving and the distribution schema prohibits an interested trustee from making distributions, the trust protector can appoint an independent special trustee to make those distributions.
  • Amend the trust
    Amendments might be necessary to alter the administrative and investment powers of the trustee, grant a testamentary power of appointment to a beneficiary, correct ambiguities or scrivener errors, or reflect changes in tax law. In addition, a government benefits authority may require a change in trust terms in order for the Grantor or beneficiary to be eligible for public benefits.
  • Terminate the trust
    If the trust protector determines that the trust is no longer economical or it is otherwise inadvisable to administer the trust, she can terminate the trust.
  • Examine records
    The Trust Proctor can step in at any time to examine the books and records. This is another example of the checks-and-balances role that the Trust Protector plays.

Why should you include Trust Proctor provisions in your documents? The provisions apply to every trust created under the agreement. So the trusts that are not even in existence yet, such as a General Needs Trust or Special Needs Trust for a beneficiary, can benefit from the trust protector provisions. This provides flexibility and oversight for both the current trust and for future beneficiaries. The Trust Protector can step in and solve a problem with the trust, to curtail the need to decant or have a trust fail in reaching its objectives.

Elder Docx is a smart and efficient document creation system that elder law attorneys across the country rely on to draft confidently for their clients. Contact us today to learn more about a WealthCounsel membership.

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