Once you have decided to use a Trust protector you need to consider the powers that you plan to give him or her. The powers can be divided into two classes, those relating to trust management issues, and those relating to the distribution of trust assets.
Examples of management powers that can be granted to a trust protector are:
- 1) to review or approve accountings prepared by the trustee;
- 2) review and approve proposed investments;
- 3) veto an investment decision made by the trustee;
- 4) remove or replace the trustee, for good cause or any reason;
- 5) add a co-trustee or appoint a successor trustee;
- 6) change the situs or governing law of the trust;
- 7) amend the trust to comply with tax or other law changes, obtain favorable tax status, make technical corrections, or correct scrivener’s errors;
- 8) terminate the trust, determine whether an event has occurred;
- 9) settle disputes between trustees, trustee and beneficiary or between beneficiaries;
- 10) authorize litigation by the trustee against third parties.
Examples of distribution powers that can be granted to a trust protector are:
- 1) requiring that the trust protector be consulted by the trustee about all distribution decisions;
- 2) giving the trust protector power to veto a distribution decision;
- 3) direct the trustee when and how to make distributions;
- 4) amend the distribution provisions of the trust;
- 5) change the beneficiary or act as an advocate for the beneficiary with the trustee;
- 6) consent to the exercise of a power of appointment, and modify the terms of a power of appointment.
It is important to realize that if the trust protector is not an attorney or other professional who carries professional liability insurance, that person may be required to post a bond. Pennsylvania requires a fiduciary to act in good faith with regard to the purpose of the Trust and the interest of all beneficiaries. While the inclusion of a Trust Protector is not mandatory, it may be advisable to assure the intentions of clients who establish legacy Trusts are followed. If you have any questions call Gregory J. Spadea of the Law Offices of Spadea & Associates, LLC at 610-521-0604.