This is another in a series of blogs on the basics of estate planning. Last week, we looked at decanting a trust. This week, we’ll look at Trust Protectors.
A Trust Protector is someone with special power over a trust. The Trust Protector is not the Trustee, although in some documents they could be called a Special Co-Trustee or a similar name. The Trust Protector does not have control over day-to-day operations of the trust. Rather, they are often given the power to do things the trustee could not or should not do for various reasons. For example, they might act instead of the trustee when otherwise there would be a conflict of interest. Another example might be life insurance. If the trust owned insurance on the trustee’s life, the exercise of incidents of ownership of the policy by the trustee would cause inclusion of the value of the policy in the trustee’s estate. Thus, the exercise of such incidents of ownership would be done by the Trust Protector, keeping the value of the death benefit from being included in the trustee’s taxable estate. (Either way, the life insurance would go as the beneficiary designation indicated. But, without the Trust Protector exercising control over the policy instead of the trustee/insured, the policy would be taxed to the trustee even though it was not received by them.)
In some circumstances, the Trust Protector may even have the authority to amend the trust, for example due to a change in beneficiary circumstances or a change in law. This can add great flexibility to a trust. For example, the Trust Protector might be used to change a beneficiary’s trust from being a “support” trust to a completely discretionary trust to allow the beneficiary to have more asset protection. The use of the Trust Protector’s amendment power can sometimes be another way to modify a trust and can achieve a goal similar to that of decanting.
Using a Trust Protector, like decanting, can add great flexibility to a trust.
In upcoming blogs, I’ll discuss more on the basics of estate planning.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
- The Magic of Grantor Trusts - September 19, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - August 15, 2023
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022
