I had the recent pleasure and privilege of attending the Heckerling Institute on Estate Planning in Orlando, January 12 to 16. Not surprisingly, the event was outstanding and demonstrated once again why Heckerling has become the national forum for estate planning professionals.
The week’s program covered a broad range of timely, valuable subjects: legislative and case law developments in 2014, a series of programs on charitable giving, a financial assets series, litigation and tax controversies, to name a few. For the purpose of this blog, we will focus on one particular highlight from Heckerling, a topic that elicited a great deal of interest and lively discussion from the attendees: The Nature and Effective Use of Trust Protectors, presented by Kathleen Sherby.
In her presentation, Kathleen Sherby explored the state of U.S. law regarding Trust Protectors, what is meant when referring to a Trust Protector, and the various roles a Trust Protector plays to maximize flexibility of a trust and carry out the settler’s intentions.
With very little domestic case law, and scant legislative history, the terms Trust Advisor and Trust Protector are often used interchangeably. Sherby warns, however, that the two positions are not synonymous. The Trust Advisor’s role and responsibilities are day-to-day, consistent, and administrative in nature. In contrast, the Trust Protector’s role is episodic and ad-hoc. As a result of the varying responsibilities, the two positions must be held to different standards. It is for this reason Sherby argues the Trust Advisor is a fiduciary position, whereas the Trust Protector is non-fiduciary.
Sherby offers several tips. First, spell out the powers. Use the appropriate designation, the Trust Advisor or Trust Protector name. If assigned powers other than those of a Trustee, call them Trust Protector, a non-fiduciary, and address that in the trust document, be it an irrevocable trust or revocable living trust. These powers might include the removal of a trustee, approval of trustee compensation or adding a beneficiary. Further, Sherby emphasizes the importance of specificity in trust terms. This includes clear delineation of the Trust Protector’s role and responsibilities. Additionally, indicate that in the absence of bad faith, the Trust Protector is not liable.
With the law unsettled and court decisions rare, Sherby’s message is cautionary: It is the wild, wild West when it comes to the designation of Trust Advisor/Trust Protector. For this reason, be sure in the drafting of trusts that the Advisor/Protector language is precisely defined and carefully tailored to the client’s desired strategy. In the final analysis, it will be the trust document itself that defines the position.
