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Trust Protectors/Trust Advisors
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 If a trust protector is not named, and the tax laws change, which they frequently do, a trust can quickly become out of date and unworkable unless the beneficiary goes to court to have the trust reformed.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 Wednesday, February 16, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
What is the role of the Trust Protector when the first spouse dies?
The Trust Protector, also known as a Trust Advisor, can have several roles regarding a trust. Principal roles typically include naming a successor trustee where a vacancy exists and the trust document does not specify who should fill that role, and amending an irrevocable trust (or portion of a joint trust) to bring it up to date with new tax laws, fix scriveners errors, or resolve ambiguities in the trust language, among other powers.
Upon the death of the first spouse, presuming a living trust is involved, then either the deceased spouse’s standalone trust has become irrevocable, or the deceased spouse’s portion of a joint trust has become irrevocable. In both instances, the trust document likely names who the successor trustee should be, and the trust document must be followed. So there is probably little or nothing that needs to be done by the Trust Protector immediately. You need to review the trust document to first ensure that provisions were made for naming a Trust Protector, to spell out what powers the trust protector has, and then determine what issues, if any, have arisen with the irrevocable trust that require the Trust Protector’s involvement.
In Vermont, Trust Protectors have fiduciary obligations, so the Trust Protector is advised to consult an estate planning attorney before taking any action, particularly where the action might benefit some beneficiaries over others. Monday, January 10, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
Can a trust protector also be a Trustee?
Yes, but it would be a bad idea. One role that some Trust Protectors, also known as a Trust Advisors, have is to remove and replace a Trustee under various circumstances. If the Trustee and Trust Protector are the same person, that oversight role would be lost. Additionally, Grantors often try to prevent trust assets from being included in the Trustee’s or Trust Protector’s taxable estate, which would be far more difficult if standard Trust Protector powers were added to standard Trustee powers. In short, these are distinct roles that should be kept separate. Merging them in the same person would likely cause ramifications in many other areas of the trust agreement that would be undesirable to the Grantor, the Trustee and the Trust Protector.
For more information on Trust Protectors, see the article:
Building Flexibility Into Estate Plans with Trust Protectors Wednesday, December 08, 2010 NEET Tips
NEET Tips answers questions posed online to the NEET website.
What is a Trust Protector?
A trust protector, also known as a trust advisor, is a person serving in a fiduciary capacity that may amend a trust to bring it up to date with changing federal or state tax laws, change the governing law or principal place of administration of the trust, and perform other specific duties or functions normally completed by a trustee, among other powers. Trust protectors are frequently included in trust documents to add flexibility, particularly where beneficiaries receive their inheritance in trust. Because beneficiaries’ trusts could be in existence for several decades, it is important to ensure that the trusts can be updated so that they remain current with changing tax and trust laws. Absent the ability to update a trust, the trust may become obsolete and of little practical use. The beneficiary would then lose the benefits of retaining their inheritance in a trust.
Trust protectors are usually named and given specific powers spelled out in the trust document, although pursuant to the Vermont Trust Code, 14A V.S.A. § 1101, a court or beneficiaries acting in agreement pursuant to provisions in the trust, may empower a trust protector to have specific powers or duties.
Determining who should be the trust protector requires balancing several factors, which is a discussion to have with an experienced estate planning attorney.
See the article: Building Flexibility Into Estate Plans with Trust Protectors | |
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Welcome to NorthEast Estates and Trusts, PLLC (NEET). NEET assists clients with Estate Planning, Probate and Estate Administration, Special Needs Planning and Advanced Estate Planning matters in Shelburne, Vermont as well as Charlotte, South Burlington, Burlington), Hinesburg, Essex, Essex Junction, Colchester, Winooski , Cambridge, Huntington, Richmond, Williston, Jericho , Underhill , Underhill Center and Fairfax. NEET also serves clients in Chittenden County, Addison County, Washington County, Lamoille County, Franklin County and Grand Isle County.
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