Thursday, April 21, 2011

NEET Tips

NEET Tips answers questions posed by visitors to the NEET website

What are the different types of trust protectors?

Because trust protectors, also known as trust advisors, have become widely used in domestic revocable living trusts only during the past decade, there is some confusion about what they are, what they do, and why they are needed. In regard to the question above, what are the different types of trust protectors, the differences among trust protectors are really more a question of which powers a trust protector has, rather than what “type” of trust protector they are.

In Vermont, the Vermont Trust Code specifies thirteen powers for trust protectors, including the power to modify or amend the trust instrument to achieve favorable tax status, to take advantage of changes in the rule against perpetuities, to review and approve a trustee’s reports and accountings, to remove a trustee or co-trustee, and to increase or decrease any interest of a beneficiary of a trust, among other powers.

Trust protectors are often a good idea to prevent a trust from quickly becoming inflexible after the trust becomes irrevocable, for example when a client’s living trust is split into beneficiary trusts after the death of the client. If a trust protector is not named, and the tax laws change, which they frequently do, a trust can quickly become out of date and unworkable unless the beneficiary goes to court to have the trust reformed. The problem with going to court is that it is unnecessarily costly and it’s impossible to know if the judge will grant the requested trust changes. Trust protectors all these changes to be made outside of court, which is less costly, more timely, and more predictable.

For more information on trust protectors, see the NEET article:

Building Flexibility Into Estate Plans with Trust Protectors