by Samantha Pahlow, CTFA, AWMA
Wealth Management Chair
In an era of evolving tax laws and shifting estate planning strategies, flexibility has become an important consideration in wealth planning. Over the years, significant changes to estate tax laws have reinforced the importance of structuring trusts in a way that allows them to adapt. While there are several avenues for altering an irrevocable trust, one tool that has gained popularity in recent years is adding a trust protector.
A trust protector is an individual or entity named in a trust document to perform certain functions regarding the trust and, in some cases, modify the trust. Unlike a trustee, who manages the trust’s assets and distributions, a trust protector typically has a more limited role, stepping in only when specific circumstances arise.
Their powers might include removing or replacing a trustee, amending trust provisions to account for changes in tax laws, resolving disputes between trustees and beneficiaries, or modifying administrative provisions to improve trust management.
A trust protector allows for flexibility, particularly in trusts designed to last for multiple generations, where future changes in the tax and legal landscape, economic conditions and beneficiary circumstances cannot be predicted. Whether a trust protector is a good fit for a particular estate plan depends on the unique circumstances of your own estate goals, assets and beneficiaries.
Advantages may include adaptability and added oversight. For example, if estate or tax laws shift significantly, a trust protector can exercise powers to ensure the trust remains effective without requiring costly and time-consuming court intervention.
Additionally, a trust protector can serve as a form of checks and balances on the trustee, helping to prevent mismanagement or unintended outcomes, or resolving disputes if their powers allow.
When trusts are designed to last for decades, having a mechanism for thoughtful adjustment and oversight can be useful. Potential drawbacks include added complexity, potential for ambiguity regarding the trust protector’s role and tension between the trust protector and beneficiaries.
If the trust document does not clearly define the trust protector’s authority, disputes can
arise between the parties involved. A trust protector also introduces an additional layer of administration, which can complicate trust management.
Not every trust needs a trust protector. For simpler trusts or those with a shorter duration, the traditional trustee structure may be sufficient. However, for individuals considering multi-generational trusts—especially those designed to provide for children and grandchildren—a trust protector may be worth considering as a tool to incorporate flexibility over time.
Since the legal framework for trust protectors varies by state, it is important to consult with an estate planning attorney licensed in the appropriate state to determine whether incorporating one makes sense for your unique situation. If you would like to explore whether a trust protector could benefit your estate plan, our team can provide guidance, education, or referrals to experienced legal professionals.
Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.