What Is The Role Of A Trust Protector?

Trust litigation frequently involved challenges to the mental competency of the settlor, i.e., the person who originally created the trust. But a recent Arizona appeals court decision addressed a more interesting question: Is it possible to exercise undue influence over a settlor such that he improperly influences the actions of the person charged with protecting the trust itself?

The Arizona case, In the Matter of ABB Trust, dealt with an irrevocable trust. The settlor named his estate planning lawyer as the trust protector. This is not the same thing as a trustee. Indeed, most trusts do not have a trust protector at all.

In any trust, it is the trustee’s job to manage the trust on a day-to-day basis. The trustee takes legal title to the trust’s assets, pays its expenses, and distributes those assets to the trust’s beneficiaries as directed by the settlor. In carrying out these functions, the law typically affords the trustee broad discretion.

The role of a trust protector, if one is named, is far more limited. The settlor can authorize a trust protector to carry out certain specific functions, which generally relate to the legal instruments governing the trust itself. For example, the settlor may grant the trust protector the authority to amend the trust to respond to changes in tax or estate planning laws. In some cases, the trust protector may also be authorized to “advise” the trustee.

In the ABB Trust case, the settlor selected a corporation to serve as a professional trustee over the trust assets. The settlor directed the trust protector to “direct” and “assist” the trustee in accomplishing the trust’s objectives. Although the trust was styled as irrevocable–meaning the settlor could not directly alter its terms after its execution–the trust language did authorize the trust protector to make amendments, provided he did so “in good faith.”

The trust protector later exercised this authority to amend the trust on two occasions. One of these amendments removed the settlor’s ex-wife and directed all of the trust’s income to go to his current wife. The amendment further reduced what the settlor’s daughters would receive from the trust and added his sons from a prior marriage as remainder beneficiaries.

Litigation ensued. The ex-wife and the settlor’s children asked a court to invalidate the amendment, arguing it was “the product of undue influence” by the settlor’s current wife. More precisely, the petitioners alleged the wife “indirectly caused the Trust Protector to adopt the Second Amendment by exerting undue influence on [the settlor].” An Arizona trial court dismissed the challenge and removed all of the petitioners as beneficiaries of the trust under its no-contest clause. The Arizona Court of Appeals reversed, however, and said the petitioners could proceed with their undue influence claims.

Speak with a Florida Trust Litigation Lawyer Today

When a trust protector is named, they may be subject to the same fiduciary duties as a trustee under Florida law. That is why if a dispute arises over the conduct of a trust protector, it is best to consult with an experienced Pompano Beach estate and trust litigation attorney. Contact Mark R. Manceri, P.A., Attorney at Law, today to schedule a consultation.

Source:

scholar.google.com/scholar_case?case=10418993426940101399