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Can You Trust Your Trustee?
Published Date : October 30, 2018
In the simplest of terms, a trust is a financial arrangement that allows another person, known as the trustee, to hold assets for the well-being of a beneficiary. There are many benefits to creating a trust: privacy, control, legacy protection and tax savings. Once the trust has been created and funded, it is the trustee’s fiduciary obligation to manage the trust assets in a manner that solely benefits the beneficiaries in accordance with the trust terms. But what if the unthinkable happens and the trustee begins to operate in an untrustworthy manner? Does your trust document have safeguards in place that would allow for the removal and replacement of the trustee? If you’re unsure of the protection provided by your own estate plan, now is the time to review your documents and ask your estate planning attorney about the role of a Trust Protector.
Merriam-Webster defines “trust” as “assured reliance on the character, ability, strength, or truth of someone or something.” Your trustee has surely been selected for these very reasons. You believe they have the character, ability and strength to perform the duties required of them long after you’re gone. But therein lies part of the problem. Many irrevocable trusts are designed to preserve family wealth for several generations of beneficiaries. Relationships can change over time and the connection to the original creator of the trust, known as the grantor, and their intentions can be weak, at best. And while most trustees will probably work to honor your intentions for which the trust was created and uphold their fiduciary duty to the beneficiaries, others may not be so principled. The likelihood of them taking off to the Bahamas with trust assets is slim, but they may drain the trust through exorbitant trustee fees or unnecessary litigation with the beneficiaries. Making matters worse, the only way they can be removed is through more expensive litigation. This is where the Trust Protector can come in to save the day.
A Trust Protector is a person or persons named in the trust document to ensure that the grantor’s intentions are fulfilled, and the trust continues to serve the purpose for which it was created. There are currently no powers that are inherently assigned to the role of the Trust Protector and it is subject to the laws of each state, which are evolving. However, keeping an eye on the trustee and terminating for improper behavior should be the main – and maybe the only – job of the Trust Protector. The successor trustee would then be the next in line as spelled out in the trust document. While it might seem counterintuitive that the Trust Protector wouldn’t have more power than this and possibly no fiduciary duty to the beneficiaries, it may be intentional. If the Trust Protector were armed with more powers, they could effectively be named a Co-Trustee and their actions could cause negative gift or estate tax consequences.
Ideally, the Trust Protector – or a committee of trust protectors – should be independent and not related to either the grantor of the trust or the beneficiaries. Their use in irrevocable Dynasty Trust planning could provide the guardrails necessary to stay true to the intentions of the grantor and ensure that the trust lasts for generations as intended.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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