Creating an effective estate plan that carries out your wishes years into the future is challenging. Over time, laws, legal strategies, and the circumstances of beneficiaries can dramatically change. Typically, an estate plan centered upon a living trust will remain revocable by the trust-maker as long as the trust-maker is living and has mental capacity. As such, it is important to review your estate plan on a regular basis with a competent attorney to make sure that your plan is still effective.
However, what happens when you are no longer able to keep your estate plan current by making adjustments to it due to your incapacity or death? Is there any way to ensure that your estate plan can navigate unforeseen change in the future?
The Trust Protector Concept:
One of the most effective mechanisms for ensuring that your estate plan stays current and navigates changes in law, changes in legal strategies, and changes in the circumstances of beneficiaries is to include provisions for a “Trust Protector.”
According to a popular California legal practice manual:
“Trust protectors serve as the watchful eyes over an irrevocable trust. Trust protectors can be granted, among other important powers, the power to amend an individual’s estate plan. For example, a trust protector can be granted the power to make administrative changes to a trust, such as changes to the procedures for the removal and appointment of trustees or changes to trustee investment provisions. A [trust-maker] may also allow a trust protector to make substantive changes to trust terms to address changes in tax laws or other legal, financial, or familial circumstances that may impact the trust. CEB Estate Planning 2013 – ‘Current Estate Planning Issues and Developments.'”
Trust Protector Law:
Few states have written statutes that address the concept of Trust Protectors. Nevada, Delaware, and Alaska are three states that have the most statutory authority on this effective estate planning tool. However, regardless of whether a state specifically acknowledges the implementation of the Trust Protector concept, a trust drafted in almost any state – including California – may incorporate Trust Protector provisions.
Powers of Trust Protector:
A Trust Protector can be given numerous powers to ensure that an estate plan remains current and effective in carrying out your intent long after you have become mentally incapacitated or passed away. The Nevada Trust Protector statute (Nev Rev Stat §163.5553) serves as an excellent overview of the many types of powers that may be granted to a Trust Protector which include:
• Modify or amend the instrument to achieve a more favorable tax status or to respond to changes in federal or state law;
• Remove and appoint a trustee, trust adviser, investment committee member, or distribution committee member;
• Terminate the trust;
• Direct or veto trust distributions;
• Change the location or governing law of the trust;
• Interpret terms of the instrument at the request of the trustee; and
• Review and approve a trustee’s reports or accounting.
A Trust Protector can be granted all of the aforementioned powers or just a few of these powers. When deciding what kinds of powers to grant to the Trust Protector, it is important to balance the interest in adding flexibility to the trust while at the same time preserving your overall intent.
Appointment of Trust Protector:
There are numerous methods for appointing a Trust Protector. First, when creating the trust initially, you can name a Trust Protector. However, it is often difficult enough to name successor financial fiduciaries, health care agents, and guardians for minor children and adding one more category of responsible individuals to act on your behalf might be too onerous.
Another method for appointing a Trust Protector would be to allow third parties, such as the beneficiaries of the trust or a trusted advisor such as your CPA or your attorney, to appoint a Trust Protector when needed.
Trust Purpose – The “Big Picture”:
The Trust Protector has a responsibility to exercise his/her powers in a manner that is consistent with your estate planning objectives. As a result, it is a good idea to provide the Trust Protector with guidance as to the overall purpose of your trust. For example, the trust purpose might state: “The material purpose of this trust is to provide an effective mechanism for the management and distribution of trust assets in the event of incapacity or death while avoiding court intervention whenever possible.”
As the law becomes more complicated and less predictable, it is becoming increasingly important to build as many “off-ramps” and “on-ramps” into your estate plan as possible. Incorporating the Trust Protector concept is one of the most effective tools to accomplish this goal.
KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 and Kyle may be reached at 831-920-0205.
Disclaimer: This article is for general information only. Reading this article does not establish an attorney-client relationship. Before acting on any of the information provided in this article, you should consult a competent attorney who is licensed to practice law in your community.