Trust Protector to the Rescue
The basic purpose for estate planning is to prepare for future situations by empowering people to solve problems or adapt to changing circumstances. Unfortunately, this old planning truism still applies:
The finest plans of mice and men often fall apart
and leave us with only grief and pain
instead of joyful hearts.
(Our paraphrased excerpt of the 1785 Robert Burns poem, To a Mouse.)
The possibility of unexpected problems complicating future trust administration inspires us to add a “trust protector” planning layer in some trusts for additional problem-solving flexibility.
A simple trust usually terminates after the trust creator’s death, which minimizes unexpected future trust administration problems. We try to be pessimistic enough to foresee such common problems as a beneficiary’s unexpected disability or a prematurely deceased beneficiary leaving young surviving children, by including additional contingency plan provisions for those circumstances as standard trust features. Problems that derail contingency plans often include relationship meltdowns and communication failures between feuding trustees and beneficiaries.
A trust protector provision authorizes someone other than the beneficiaries and trustees to make problem-solving modifications to the trust. The trust protector’s authority can be as broad or narrow as the estate planning client desires. It is usually best to limit the authority to a narrow range of actions to avoid creating a conflict of interest for the trust protector so that the trust protector can remain independent and unbiased about the outcome. Common trust protector powers include the power to change trustees, to change how beneficiaries receive distributions or make other subtle changes in response to unexpected changes in applicable laws.
Trust protector selection can be as challenging as trustee selection. Strong integrity is a trust protector’s most important qualification, because people whose interest may be affected by the trust protector’s action or decision not to act may try to influence the trust protector with threats or bribes. A trust protector should be young enough to be physically and mentally capable of acting when a future problem arises, but sufficiently wise and familiar with the client’s family dynamics to know when and how to intervene. A trust protector also needs to be courageous enough to endure harsh responses from disinherited family members, disgruntled beneficiaries, or terminated trustees that may object to the trust protector’s actions or decision not to act.
We prefer to include multiple layers of successor trustees and trust protectors as part of our deliberate planning pessimism. A person may be dependable now, but health problems, family dynamics, death, or other changes in circumstances may discourage or prevent the primary successor trustee or trust protector from serving.
Current Indiana law permits an estate planning client to protect a trustee or trust protector from liability for consequences of discretionary actions or decisions not to act with exoneration provisions. Exoneration critics argue that trustees and trust protectors should always be accountable to beneficiaries for their actions or decisions not to act, but exoneration proponents counter that people may be reluctant to serve as trustees or trust protectors without exoneration.
A client can also provide for a trustee or trust protector to receive compensation or reimbursement for expenses. Expense reimbursement is a simple matter, but compensation planning requires careful thought to make sure that the compensation does not create the unintended potential for conflicts of interest.
The American College of Trust and Estate Counsel (ACTEC) Foundation‘s podcast channel presented a discussion of trust protector concepts in Episode 151 in April 2021 entitled “Trust Protectors.”
We conclude in reflection on Robert Burns’ poetic epiphany with our own humble composition:
Perfect planning requires omniscience, a supernatural attribute,
Thus, thoughtful planning may still not spare someone from becoming destitute.
God, alone, anticipates the fate of every man,
So faithful devotion in soulful prayer should accompany every plan.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a Fellow of the American College of Trust and Estate Counsel ( ACTEC) and the Indiana Bar Foundation; a member of the Illinois State Bar Association; and he was the 2014-15 President of the Indiana State Bar Association.
Hawkins Elder Law is one of the few elder law firms that Martindale-HubbellTM has rated AV Preeminent, with both of the firm’s lawyers (Jeff Hawkins and Jennifer Hawkins) also rated AV Preeminent.
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