A “Trust Protector,” also sometimes called a “Special co-Trustee,” is not really a trustee but is someone who has special power over the trust. Depending upon the trust, they may have the power to modify the trust for changes in beneficiary circumstances or changes in state or federal law. They may have the power to change the situs of the trust to a different location.
Let’s look at an example of how such a person can help. Mary is the beneficiary of a large trust. The assets are to be distributed to her upon the death of her parents. However, Mary is involved in an accident and is in need of continuing medical care for which government assistance would be helpful. Ideally, the assets in the trust would be preserved for Mary’s use for her “special needs,” such as vacations, etc. So, the Trust Protector modifies the distribution to Mary to have it go into a “special needs trust” for her benefit, instead of it going outright. As a result, Mary might qualify for Medicaid or other governmental benefits, whereas an outright distribution likely would have disqualified her.
Let’s look at another example. John set up an irrevocable trust in state X. State X has a state income tax rate of 10% on trust income. By changing attributes of the trust, such as the location of administration, the governing law, or the trustee, the Trust Protector may be able to change the situs for tax purposes. Thus, the trust situs could be moved to State Y, which has no state income tax.
Some states have statutes that specifically define the role of “trust protector” and limit their liability for their decision-making. Other states do not. The law is developing in this area.
Unfortunately, needs and circumstances change over time. It’s not possible to foresee every possibility. By including a Trust Protector in your trust, you can make the trust much more flexible.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com
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