What IS a Trust Protector? Do you Need One?
Under Section 736.808(3) of the Florida Trust Code, the terms of a trust may give another person (other than the trustee) a power to direct the modification of a trust. We often call this person a “trust protector” or a “trust adviser”. This person has the ability to affect the terms of the trust. How did this trust protector status come about?
The trust protector originated in the use of off shore trusts created in favorable asset protection jurisdictions such as the Isle of Man or the Cayman Islands to protect high net worth individuals’ wealth from creditors’ claims. An individual would create an “off shore” trust and fund the trust with their assets. If the individual was sued in the US, those assets were “off shore” and it was very difficult for a creditor to execute the judgement against those assets in the “off shore” trust. If the creditor tried to execute the judgement in the foreign country and attack the trust, a trust protector had the authority and ability to move the trust assets to another favorable jurisdiction. The trust protector was NOT the trustee and was considered independent and following the instructions in the trust.
The use of a trust protector became more common in the US, when trusts were allowed to last for many years- for the benefit of children, grandchildren and great grandchildren (the “dynasty trust”). The grantor of such a trust realized that in 100 years laws, children, grandchildren and other issues could change and the grantor would need an independent person (and successors) to oversee the trust and to make decisions regarding the trust. Any trust may use these provisions and may use a trust protector to change trustees, modify the trust provisions, etc. However, much confusion exists on the trust protector’s exposure to liability and whether a trust protector is considered a “fiduciary” or not. Scant US case law exists on the role and duties of the trust protector.
A recent Florida case, Minassian v. Rachins and Minassian, is the first Florida case to directly address the trust protector provision in the Florida Trust code.
Zaven Minassian (“Zaven”) died in 2010. Zaven created a trust prior to his death in which he and his wife (“Wife”) were co-trustees and which was created for the primary benefit of his Wife and himself. At Zaven’s death, the trust became irrevocable and was named the Family Trust (a marital trust was not created as there was no federal estate tax in 2010 and no marital trust needed to be created under the terms of the trust), which benefited Wife. At Wife’s death, the terms of the trust provided that the Family Trust terminated and that the monies were to be distributed and divided into separate trust shares for each of Zaven’s children.
The children argued that, as beneficiaries, they were entitled to a trust accounting, (Section 736.0813 of the Florida Statutes) which they had not received from the trustee. Wife argued that the children did not have standing. Under the terms of the Family Trust, the Family Trust TERMINATED at Wife’s death and thus, the children were not Family Trust beneficiaries and therefore not entitled to a trust accounting. Wife lost her motion to dismiss.
Wife then used the provision in the trust providing that Wife could appoint a trust protector to “protect… the interest of the beneficiaries as the [t]rust [p]rotector deems, in its sole and absolute discretion, to be in accordance with my intentions…” The trust protector amended the trust to clarify that Zaven meant to create a new trust after the Wife’s death and that the children only shared in the new trust. The children challenged this.
The court determined that the trust protector’s amendment was within his powers and that the amendment was valid. The Court remanded the case to the trial court with directions that the amendment was valid.
What is more interesting is the issue of the duty to account. Can you draft a provision in the Family Trust that the Family Trust “terminates” to avoid the need for the trustee to account to the beneficiaries of the NEW trust? That has not been the practice before this case. We will be looking for guidance in that area and I have notified the Florida Bar Real Property and Probate Trust Law committee of the need to look at this issue.
ADVICE: Trust protectors can be useful, especially in trusts that are drafted for long periods of time. They can also be useful if you want an independent person watching over the trustee. Discuss with your attorney if you need or want a trust protector. Remember, trust protectors will want to be compensated for the liability that they may face.
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