THE TRUST PROTECTOR
Over the last several decades many Offshore Trusts have used a Trust Protector to protect the interests of the Trustor and the beneficiaries of the Trust. We now provide for Trust Protectors in our Domestic Asset Protection Trusts and other types of Trusts including the Revocable Living Trust.
Who is a Protector?
A Protector is an independent third party who is given responsibility and discretion over certain functions of the Trust. As examples, the following functions and powers may be given to the Protector:
1. The power to change trust situs (or domicile) to another jurisdiction.
2. The power to amend the Trust in certain ways and under certain conditions.
3. The power to remove the Trustee or to substitute a new Trustee.
4. The power to veto distributions.
5. The power to veto Trustee decisions.
The utilization of a Protector affords the Trustor greater flexibility and more current and relevant Trust planning than if the Trustor would have failed to include provisions for a Protector. The Protector can be a relative, friend or third party professional. Ideally, the Protector should be someone completely independent from the Trustor and, if possible, outside of the state jurisdiction of the Trustor.
As has been stated in other blogs, the Domestic Asset Protection Trust is particularly effective when it is combined in the Modular Structure with an LLC. The professional, real estate investor/landlord or business executive and his or her family can be the beneficiaries of the Domestic Asset Protection Trust, but the Trust technically owns the member interests of the LLC that have been placed in it. Thus, a substantial firewall of protection has been established against creditors.
A diagram of the Modular Structure is set forth below:
Trust Protector Case Study:
Here is an example of how the Trust Protector may work in various situations. The Trustor of the Trust has set up the Trust in California. It now appears to be a good idea because Nevada law is more favorable to change the jurisdiction of the Trust to Nevada. Moreover, as a result of changing it to Nevada, it may require a new Trustee. Accordingly, the Trust Protector is requested to execute a document which acts as an Amendment to the Trust changing the situs of the Trust to Nevada and changing the California Trustee to the Nevada Trustee. The Trustor would have to sign this Amendment along with the Trust Protector and also the two Trustees, one to resign and one to take its place.
As you can tell, this Protector Provision provides tremendous flexibility for the Trust. It is something that is needed and should be in almost every Trust.