Using a Trust to Protect Your Assets

When you create a Trust (watch attorney, Mark Bregman, explain), you may believe you are automatically protected against loss — and with a well-drafted Irrevocable Trust, to a certain degree you are. Yet, nothing in life is truly automatic, and no Trust, no matter how well-planned or well-executed, can foresee and provide for every issue that may potentially arise at a future date. Does that make Trusts a bad idea? Not at all. What it does do is make the crucial role of Trust Protector a vital provision to include in your Trust.

What Is a Trust Protector?

Your Trust Protector provides a number of key checks and balances by functioning in the following capacities to help maintain the viability of your Trust:

Overseer

A Trust Protector is exactly what the name implies: an individual who has been charged with the responsibility of protecting Trust assets from mismanagement, misappropriation, or other types of sub-par handling by the Trustee or by claims made against the Trust by outside parties, such as creditors. Any action that could threaten the viability of the Trust and jeopardize the provision the Trust was designed to offer Trust Beneficiaries would be in the Trust Protector’s realm. The Trust Protector, then, works on behalf of the Trust’s Beneficiaries, helping to ensure that the Grantor’s wishes and purposes for creating the Trust are not only honored but competently carried out.

Power Limiter

Your Trust Protector can provide guidance and impose limits on your Trustee, preventing actions that are in direct conflict with the original intent of your Trust. Without a Trust Protector, Beneficiaries generally have little recourse but to petition the court to have a rogue Trustee removed, wasting Trust funds on costly litigation with no guarantee that they will prevail. With a Trust Protector safely in place, the removal process is simple and can be handled without depleting Trust funds.

Advocate

In addition to protecting the funds or other Trust property, a Trust Protector can allow you, as the Trust’s Grantor, to retain a certain degree of indirect control over your assets and over the terms of your Irrevocable Trust (view all trusts). Such control is crucial to ensure that the original purpose of your Trust is not defeated or purposely hijacked. Appointing a Trust Protector can give you the flexibility you need to alter your Trust’s provisions for your Beneficiaries’ protection when laws, circumstances or other relevant factors change or come to light. Without a Trust Protector, these much-needed changes would be impossible. A wise Trust Protector will give you the support you need to see that the spirit behind your Trust’s provisions — and not simply its legal formalities — takes center stage.

What factors can change that might make the oversight of a Trust Protector vital to your Trust?

.   Laws

.   Circumstances

.   Relationships

.   Beneficiary Locations

.   Beneficiary Needs

.   Asset Values

.   Trustee Actions

.   Legal Jurisdictions

Each of the above changes is, by nature, unanticipated or unknown, which means that you simply can’t provide for each one specifically in your Trust Deed. Since an Irrevocable Trust provides the best protection for your assets, you’ll definitely want to choose this vehicle. And to add critical flexibility to any of your Trust’s more stringent provisions that could later come back to haunt you, you’ll want to make doubly sure you have the Trust Protector option in place when you draft your Irrevocable Trust, as it will help you cover all the future possibilities over which you would otherwise have no control.

Insurance Policy

Your Trust Protector is, in effect, the insurance policy for your Trust, giving you the assurance that you will always have recourse whenever anything goes wrong. The value this option provides to you and your Beneficiaries could never be overstated, and the perils of not adding this provision to your Irrevocable Trust could be a decision you — or your Beneficiaries — live to regret.

Trust Protector Powers

When you draft a Trust, you do so with the expectation that you are guarding your assets and providing present and future security for the Trust’s Beneficiaries. Yet, unfortunately, this is not always the case unless you provide a responsible Trust Protector to take on the oversight of the Trust.

Depending on the provisions of the individual Trust, the Trust Protector may be granted the authority to do one or more of the following on behalf of the Trust and/or its Beneficiaries:

.   Appoint or remove Trustee(s)

.   Overrule certain Trustee decisions

.   Resolve disagreements between Co-Trustees and/or Beneficiaries

.   Provide advice and guidance to Trustee(s)

.   Withhold Beneficiary distributions temporarily or permanently

.   Amend the Trust in response to changing conditions

.   Terminate the Trust when necessary

The minimum power typically granted a Trust Protector is that of appointing and removing the Trustee(s). However, a well-drafted Trust will allow your Trust Protector to exert an even more potent protective influence on your behalf by granting your Trust Protector the other beneficial powers listed above.

Who Needs a Trust Protector?

If you plan to set up an Irrevocable Trust, you need a Trust Protector. And if any of the following conditions apply to you, you could greatly benefit from setting up a well-drafted Irrevocable Trust:

.   You plan to be married and your assets or earnings are substantially larger than those of your spouse-to-be. The Trust instrument will keep them separate without the need for an intrusive, uncomfortable, and usually unenforceable prenuptial agreement.

.   You have a large or even a modest estate that you want to keep safe for the benefit of your heirs. An Irrevocable Trust will protect your estate from creditors.

.   You’d like to avoid probate and estate taxes on the legacy you leave to your heirs. Your Irrevocable Trust will help you do both.

.   You are in a position where your assets are vulnerable to loss in a lawsuit (e.g. a doctor who could be wiped out by a malpractice suit). Your Irrevocable Trust will shield your assets from greedy contingency fee attorneys.

.   You’ve received even a modest inheritance from a deceased relative that you’d like to protect and not be forced to use up to qualify for Medicaid or another type of government benefit.

.   You own a business and would like to protect its assets against creditors and keep them from being used for estate tax purposes.

People have many reasons for setting up an Irrevocable Trust, and every one of those reasons is an equally valid justification for adding the extra layer of protection that a Trust Protector provides.

If you value your privacy, flexibility, security and financial solvency, consider adding a crucial Trust Protector provision to your Trust. These provisions can give you the protective edge that lets you sleep better at night knowing your Trust assets are safe.