Using a trust protector will supercharge your estate planning

When you establish a trust, one of the biggest decisions you make is who will serve as trustee if you become ill or pass away. You must be able to rely on your successor trustee to follow your instructions, manage trust assets like a reasonably prudent person, make appropriate distributions and avoid even a hint of self-dealing. In my experience, most successor trustees do just fine, especially when they are represented by a competent trust administration attorney. But what if your successor trustee isn't up to the job? What if they "go rogue" when you're not there to do something about it?

This is when incorporating a trust protector into your trust can really give you tremendous peace of mind. We include a trust protector in nearly every trust we draft (i.e., regardless of whether it's a living trust or a special needs trust).

The trust protector's primary job is to keep a careful eye on your successor trustee. The trust protector is usually given access to the trustee's books and records. They can even compel the trustee to provide an accounting or at least a summary of what's being done with trust assets. If the successor trustee is mismanaging funds, the trust protector can often terminate the trustee and, if the trust allows it, select a qualified replacement.

Sometimes, we will even permit the trust protector to make important amendments to the trust. For example, the trust protector can correct so-called "scrivener's errors," adjust the tax provisions of the trust to keep up with changes in the law, convert a general needs trust into a special needs trust (i.e., in case a typically achieving beneficiary becomes disabled), and ensure that any trust that receives retirement account benefits qualifies as a "designated beneficiary" under IRS rules.

One of our favorite things to do with a trust protector is to involve them in the process of protecting our clients' estates from ever ending up in the hands of a beneficiary's creditors or former spouse.

Of course, incorporating a trust protector is especially important when you have a beneficiary who is a minor or who has special needs. That's because a vulnerable beneficiary may not be able to ensure that their trustee is really doing the right thing, but their independent trust protector can.

Consider the following example.

Mary is elderly and would like to make sure that her son Adam, who has special needs, is cared for at home for as long a possible when she is gone. Mary establishes a special needs trust that will hold her home for Adam's benefit. She transfers enough money to the trust to make sure that the property is well kept and the bills are paid. Mary's next closest relative, her niece Martha, does not want to serve as trustee of Adam's trust because she does not want the added responsibility of managing the home. So Mary names John, a friend of hers who knows Adam and who runs a property management company, as the trustee instead. Although Mary trusts John, she decides to name Martha as a trust protector to review his yearly accounts, to make sure he charges the proper amount for his services, and to ensure that he keeps the property in good shape.

This article is courtesy of Special Needs Attorney Brian D. Wyatt in Sacramento, CA

 

Trust and Investment Management Services offered through Fremont Bank.

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