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Vol 21 No 9 Sept/Oct 2016

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Goode on Commercial Law

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Trust Protectors: A Practice Manual with Forms

ISBN13: 9781578233762
Published: October 2014
Publisher: Juris Publishing
Country of Publication: USA
Format: Hardback
Price: £160.00

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The trust protector is generally regarded as a relatively new position in trust law, and the key feature of the position is that the protector may be granted powers over the trust, which are generally superior to those of the trustee. This places the protector in a position where, by the exercise of his powers, he can cause the trust to adjust to unforeseen changes or new conditions without the need for court action or beneficiary approval. This work takes the firm position that, with only limited exception, the role of the protector is a fiduciary one, imposing on the protector a duty to act in the best interests of the purposes of the trust and the beneficiaries.

Unfortunately, a substantial segment of the legal community, as well as the legislative bodies of a number of international jurisdictions, have taken a position that the protector is not a fiduciary, or that he may be declared in the trust not to be a fiduciary, and that the power granted him under the trust may be declared to be personal powers, whether or not such is the case, and thus he would have no liability for his actions or inactions while serving as protector. This “attraction” of providing total exculpation of the protector has effectively engendered a quick acceptance of the position by the bulk of the legal community and even by the legislatures of a number of jurisdictions, though almost totally unsupported by relevant case law. As a result, we have been seeing trusts which incorporate the use of a protector having the power to make critical dispositive and administrative decisions, as well as extensive modifications to the trusts without being exposed to liability for negligence or bad decisions which result in damages.

This work will examine in detail the role of the protector of the trust, the relationship between the protector and the trustee, between the protector and the beneficiaries, and the protector’s responsibilities to the purposes of the trust. It will demonstrate with legal support that the role of the protector is not a new role, that, in fact, the protector is simply a new name for the decades-old position of trust “advisor,” and that the trust advisor is consistently regarded as a fiduciary in relevant treatises and has been repeatedly held to be a fiduciary in relevant cases. The discussion will also review and analyze the historical issues and professional commentary relevant to trust law and the role of protector, as well as case decisions in various international jurisdictions which have shed light on the issues and some of the positions taken in the statutes of a number of jurisdictions in the United States and across the world. All legal aspects of the role will be examined, including the rights of the protector, the protector’s relationship to the trustee, and the courts’ regard for and treatment of the position.

Further, the work will discuss in detail all of the practical considerations in using a protector, such as selection and special drafting considerations, the use of a protector in a foundation, and, in brief, the numerous tax issues that may apply. The conclusion will be that with only very limited exception, which will be explained, the protector is unquestionably a fiduciary, and just as a trustee, he should be held to fiduciary standards. Accordingly, while it is certainly possible to grant personal powers to an individual under a trust, those powers per se conflict with the duties of a protector. And while it is also possible to reduce the fiduciary liability of a protector to a minimum, it is not possible to eliminate it entirely, regardless of trust language attempting to do so.

Equity and Trusts, Other Jurisdictions , USA
Chapter 1 The Protector: Friend, Foe or Fiduciary?; 1.1 Beginnings
1.2 The First United States Case

Chapter 2 Development of the Position of the Trust Protector
2.1 The Trust without the Protector
2.2 Origin of the Term, "Protector," and Its Initial Role
2.3 Origin of the Concept of Protector and the Relevance of the Name-tag

Chapter 3 The Protector as Fiduciary
3.1 Analyzing the Role and Its Responsibilities
3.2 Personal versus Fiduciary Power and Statutory Dictates
3.3 Legal Forms Follow the Pack
3.4 Courts Begin to Consider the Role
3.5 When a Personal Power Is Intended
3.6 Fiduciary Power and Fiduciary Duty
3.7 Fiduciary Power versus Fiduciary Position
3.8 Fiduciary by Virtue of Profession or Identity
3.9 Fiduciary by Circumstances
3.10 A Court's Analysis of Powers
3.11 The Settlor's Intent Should Control
3.12 Trust Language Contradicting the Settlor's Intent
3.13 Where the Trust Is Silent
3.14 Drafting Away Fiduciary Duty
3.15 Statutory Elimination of Fiduciary Duty
3.16 The Office of Protector versus the Individual
3.17 Stating the Obvious: The Protector Is a Fiduciary

Chapter 4 Powers of the Protector
4.1 Reasons for Powers
4.2 How Powerful Can/Should the Protector Be?
4.3 Illegal and Impermissible Powers
4.4 Are More Powers Better?
4.5 Deciding on Greater or Fewer Powers
4.6 Implied Powers
4.7 Statutory Powers
4.8 How the Powers Are Exercised
4.9 Multiple Protectors
4.10 Entity Protectors
4.11 Delegation of Powers
4.12 Release of Powers and Effect on Successors

Chapter 5 Duties of the Protector
5.1 Duty under a Personal Power
5.2 Duties of Protector as Beneficiary
5.3 Protector's Duty to Monitor the Trustee
5.4 Manner of Duty and Discretion
5.5 Duty Not to Give Pre-arranged Consent
5.6 Duty of Protector with a Conflict of Interest

Chapter 6 Protector's Liability
6.1 Establishment of Protector's Liability;
6.2 Identifying the Specific Liability
6.3 Liability of the Protector versus That of the Trustee
6.4 Determining the Extent of Liability
6.5 Exculpating the Protector

Chapter 7 Rights of the Protector
7.1 Protector's Rights in General
7.2 The Right to Information -- Protector with a Personal Power
7.3 The Right to Information -- Protector with a Fiduciary Power
7.4 The Right to Enforce Claims and Trust Provisions on Behalf of the Trust and the Beneficiaries
7.5 The Right to Indemnification
7.6 Protector's Lien for Expenses
7.7 The Right to Compensation

Chapter 8 The Relationship between the Protector and the Trustee
8.1 Who's in Charge?
8.2 Is the Trustee Bound to Follow the Protector's Instructions?
8.3 Status of the Trustee in Relation to the Protector
8.4 Where the Powers of the Protector and the Trustee Overlap
8.5 United States Trust Law and Third-Party Advisors
8.6 Statutory Exculpation of Trustees Following Advisor's Direction
8.7 "Directed" Trusts
8.7.1 Directed Trustee Has No Duty to Inform the Protector
8.7.2 Establishing a Directed Trustee's Breach -- A Near Impossible Burden of Proof for the
8.7.3 Directions outside the Scope of Protector's Authority
8.7.4 Where the Trustee Should Have Known of a Breach by the Protector ;
8.8 The Uncertainty of the Uniform Trust Code
8.9 Trustee's Inherent Obligation to Inquire
8.10 Protector's Duty to Inquire and Monitor
8.11 Consider the Purpose of the Grant of the Power
8.12 One United States Case -- No Duty to Inquire
8.13 Veto Power ;
8.13.1 Protector's Veto Powers
8.13.2 Trustee's Disagreement with Veto
;8.14 Having Integrity Rule ;

Chapter 9 The Courts' Role and Jurisdiction over the Protector
9.1 Development of the Law through Precedent
9.2 The Court's Inherent Jurisdiction over the Protector as a Fiduciary
9.3 Jurisdiction Where the Protector Is Not a Fiduciary
9.4 Where the Non-fiduciary Protector Is Found to Be a Fiduciary
9.5 Court's Recognition of Statutory Declarations
9.6 Where the Protector Is a Fiduciary
9.7 Court's Power to Appoint and Remove a Protector
9.8 Court's Power to Review Appointment of a Protector
9.9 Court's Power to Override a Protector's Decision or Exercise of Power
9.10 Court's Power to Suspend Protector's Powers
9.11 Court's Power to Surcharge the Protector
9.12 Court's Power to Compel the Exercise of a Protector's Power
9.13 Confidence through Court Predictability

Chapter 10 Practical Issues in Using Protectors
10.1 Reasoning behind the Role
10.2 Issues in Selecting and Utilizing a Protector
10.3 Protector in a Foundation ;
10.3.1 Reasons for Including a Protector in a Foundation
10.3.2 The Foundation and Fiduciary Duty ;
10.4 Tax Considerations for the Foundation
10.5 Protector in a Purpose Trust
10.6 Protector in a Revocable Trust;
10.7 Selecting a Protector ;
10.7.1 General Criteria to Be Considered
10.7.2 Specific Criteria to Apply in the Selection ; Experience in the area of Trusts/foundations; Insurance coverage for damages or losses Adequate staff Response time to address issues Regulated Location (where asset protection is an objective) ;
10.8 Individual versus Committee versus Entity as Protector;
10.8.1 Individuals
10.8.2 Committee
10.8.3 Corporation and Limited Liability Company ;
10.9 Drafting Considerations ;
10.9.1 The Fiduciary Issue
10.9.2 The Compensation Issue
10.9.3 Hiring Agents and Attorneys
10.9.4 Right to Defend Claims against Himself
10.9.5 Enumeration of Specific Powers ; Power to remove and replace the Trustee Power to enforce claims Right to reimbursement Right to information Power to amend the Trust Power to add or delete Beneficiaries Power to decant The new "flee" clause Change of situs and governing law Power to terminate the Trust Power to consent or veto Tax restrictions Vacancies, Successors Excluded Protectors Resignation Incapacity, insolvency, disappearance Perpetuities Standards of Protector liability Incorporating powers by reference Anti-duress provision ;
10.10 Letter of Wishes ;
10.10.1 A Guide for the Trustee
10.10.2 Letter of Wishes to the Protector
10.10.3 Revealing the Settlor's State of Mind
10.10.4 Letter Should Be Non-binding;
10.11 Use of the Protector in Asset Protection Plans ;
10.11.1 The Value of Flexibility
10.11.2 The Protector and Asset Protection Trusts
10.11.3 Special Drafting Considerations for Asset Protection Plans ;
10.12 The Springing Protector ;
10.12.1 Assessing Need and Cost;
10.12.2 Employing a Springing Protector ;
10.13 Tax Considerations for the Protector;
10.13.1 U.S. Tax Considerations in Selecting a Protector
10.13.2 Independent Protector
10.13.3 Protectors (Other than the Settlor) Who Are Beneficiaries
10.13.4 The Settlor as Protector
10.13.5 Powers that Generally Do Not Have Tax Consequences for an Interested Protector.
10.13.6 Powers that Generally Do or May Have Tax Consequences for the Interested Protector Other than the Settlor.
10.13.7 Tax Consequences of Non-Fiduciary Protectors ;
10.14 Court's Reaction to the Protector ;
10.14.1 Slow but Steady Acceptance by the Common Law Courts
10.14.2 Reluctant, Questionable Acceptance by United States Courts;
10.15 Statutory Treatment of the Protector ;
10.15.1 Background and Development
10.15.2 Practical Issues concerning the Statutes

Chapter 11 The Future of the Protector

Appendix I Selected Protector Statutes -- United States ;
Appendix II Selected Protector Statutes -- International Jurisdictions ;
Appendix III Trust Protector Forms;
III. - A. Master Protector Provision for Inclusion of a Protector
Form III - A The Protector ;
III. - B. Removal of Trustee and Appointment of Successor
Form III - B Trustee Removal and Appointment of Successor Trustee ;
III. - C. Removal of Protector and Appointment of Successor Protector;
Form III - C Removal of Protector and Appointment of Successor;
III. - D. Notice to Beneficiaries, Trustee or Protector
Form III - D - i A.) Notice to Beneficiary - Change of Protector
Form III - D - i B.) Notice to Beneficiaries - Change of Situs
III. - E. Appointment of a Springing Protector
Form III - E Appointment of a Springing Protector
III. - F. Appointment of a Protector Committee;
Form III - F Appointment of a Protector Committee;
III. - G. Protector's Exercise of Various Powers
Form III - G - i Directing a Distribution
Form III - G - ii A.) Addition of a Beneficiary
Form III - G - ii B.) Deletion of a Beneficiary
Form III - G - iii Appointment of Trust Assets
Form III - G - iv Grant of Power of Appointment
Form III - G - v Engagement of Counsel
Form III - G - vi Change of Situs and Governing Law
Form III - G - vii Monitoring the Trustee
III. - H. Protector's Protection
Form III - H Release and Indemnification of Protector

Table of Abbreviations
Table of Cited Sources
Table of Cases