Springing Trust Protectors — Now You See 'em, Now You Don’t

The article discusses the growing importance and use of a "trust protector" in estate planning, a role that wasn't widely understood until recently. Trust protectors originated with offshore asset protection trusts, where they provided an extra layer of control over the trust, offering flexibility and security for the settlor, who often hesitated to entrust large amounts of wealth to foreign trustees. This concept has since been adopted in U.S. trusts to allow adjustments to irrevocable trusts without needing court reformations, which can be complex, costly, and time-consuming.

A trust protector is a non-trustee individual with the power to oversee or modify trust provisions to respond to changing circumstances, such as laws, family dynamics, or economic conditions. Their powers may include modifying beneficiaries, relocating the trust, or even altering the trust's terms. However, the extent of a trust protector's powers and responsibilities requires careful drafting.

The article also explores the concept of a "springing protector," a protector appointed only when needed. This approach allows for flexibility without permanently binding the trust to a specific protector. Questions arise around the legal basis, liabilities, compensation, and scope of powers for both permanent and springing protectors, especially in terms of tax implications or potential creditor issues if a protector holds nonfiduciary powers.

Ultimately, the trust protector offers a practical solution to managing unforeseeable changes during the life of a trust, minimizing the need for court involvement and allowing for smoother administration.

For more information see Alexander A. Bove Jr "Springing Protectors — Now You See 'em, Now You Don’t" ABA Probate and Property Journal, September 1, 2024.