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Trust Protectors Making Headlines

Posted on: September 28th, 2017

As the domestic use of trust protectors grows, further legislation and issues arise. Litigation, trust modifications, and other matters involving trust protectors have made headlines over the past year. Including trust protector provisions under one’s trust document grants wide flexibility over trust administration; understanding contemporary issues concerning estate planning highlights the benefit that trust protectors may provide and guide planning efforts. Our trust attorneys gathered a few recent articles that illustrate how tax, fiduciary, and trustee matters can be managed through the continued use of trust protector services:

  • Relief from FATCA reporting. An article from Lexology in the fall of 2016 profiled tax reporting requirement changes for trust protectors and compared how the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) differ in the regulation of trust protectors. Regulators reviewed whether the trust protector has a certain level of control over the trust, how the financial institution reports and identifies the power holder, and tax residency status when determining the reporting requirements. In most circumstances, FATCA does not impose reporting requirements on trust protectors in the United States. The article, “Trust Protectors: Reportable Under CRS, But Not Under FATCA,” outlines reporting obligations that were implemented by CRS in 2016.

  • Flexibility for trust beneficiaries with declining health, disability, or incapacity. The CPA Journal released a piece in the spring of 2017 that concentrated on the financial, tax, and legal matters associated with chronic illness. The article acknowledged how a trust protector in a revocable living trust could be “used to provide a check and balance on the trustee.” Trust protectors help oversee that the trustee fulfills their duties and can be granted the authority to add, remove, and/or replace a trustee. In circumstances of illness, particularly those involving an unanticipated illness, having a trust protector in place ensures fluid trust administration when beneficiaries may need trust income the most.

  • Fiduciary duty ambiguity and clarity. Not all trust protectors are considered fiduciaries. Whether or not trust protectors are recognized as fiduciaries hinges on state law as well as provisions in the trust document. Attorney Alexander A. Bove, Jr. authored “A Protector by Any Other Name…” in the August 2016 edition of Estate Planning and Community Property Journal. The piece explores how trust protectors have been ‘mischaracterized’ and how this affects trust drafting. Bove suggests trust protectors who are beneficiaries of the same trust they maintain power over should not be recognized as fiduciaries. Learn more about factors that determine whether a trust protector is held to fiduciary standards.

With the evolving legal landscape surrounding trust protector services, individuals serving in the role, or considering the responsibility, should fully research and understand the administrative efforts and liabilities the role entails. Get a copy of our current complimentary legal guide Trust Protectors 101. The powers and restrictions, qualifications, and processes for adding/removing trust protectors are included in the guide. A short time spent gathering information can help to ensure efficient long-term trust administration.

 
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