A trust protector has significant power over trust administration. They may have the authority to remove and replace trustees, add or remove beneficiaries, and modify the trust, among other powers. When critical matters hinge on one party, it’s important to consider how a trust protector will be replaced if and when the time comes.
Since trust protectors may be given varying degrees of power over trust administration—including representing the trust in litigation, changing trust situs and governing law, veto power over investment decisions, and terminating the trust—the factors below can help to guide the design of trust protector successor plans:
- Time. Many trusts, such as dynasty trusts, are intended to be in effect for multiple generations. Over a long period of time, the party serving as trust protector will likely eventually change. The timeline of the trust can help to guide how the trust protector will be replaced. For instance, if the grantor is still alive, trust terms might provide the grantor the power to remove or replace a trust protector. When creating a trust, ask an attorney about successor provisions for trust protectors that would be in effect following the grantor’s death.
- Relocation. The trust protector may move to another jurisdiction during the life of the trust, which could prohibit them from monitoring trustee actions or trust distribution matters. Trust protectors can easily act remotely in some trusts, but consider trusts with complicated assets or unique concerns that might necessitate having a trust protector located in the same jurisdiction in which the trust is being administered.
- Successor protector provisions. Existing trusts may already contain provisions for implementing a successor trust protector; however, some issues might surface that aren’t contemplated by existing provisions. Depending how the successor provisions were drafted, if the terms are ambiguous or in some way lack clarity for proper interpretation, they could be void. Some trusts lack these terms altogether, which generally requires court action. (Since grantors often include trust protectors to limit or prevent the costs and delays of court, overlooking successor trust protector provisions could defeat the grantor’s intention.) When creating a new trust or adding successor provisions to an existing trust, it’s imperative to be as specific as possible.
As with choosing a trust protector, best practice in selecting a successor trustee promotes selection of an individual or entity with no familial relation, either biological or through marriage. The appointed party should either have experience in legal and financial matters or be willing to seek and follow professional guidance. Standard practice exempts the grantor, beneficiaries, or any party who contributed to the trust from serving as trust protector.
Learn more about important provisions and situations that can affect trust administration in our new legal guide Trust Protectors 101.