What is a Protector Clause?

May 28, 2018 Noah Weisberg Estate & Trust, Estate Planning, Executors and Trustees, Litigation, Trustees, Wills Tags: , , , , , , , 0 Comments

The use of a protector to assist in the administration of a trust was traditionally limited to offshore trusts.  However, a protector clause is garnering attention in the USA & Ontario, and is an important clause that estate planners should consider in preparing a will or trust.

Most people are familiar with the office of a trustee – they administer the trust, invest assets, and look out for the best interests of a beneficiary.  But, the administration of a trust is no different than life itself – things do not always go as planned.  Issues can arise between a beneficiary and a trustee and sometimes between trustees themselves.  Before you know it, bickering ensues, litigation follows, and legal costs accrue.

A protector clause, properly drafted, may be useful in avoiding litigation.

A trust protector has been defined as a third party, independent from the trustee and beneficiary, who has the authority to perform certain duties with regard to a trust.

The protector oversees the administration of the trust, looking out for the interests of a beneficiary, and to intervene if necessary.  The powers included in a protector clause can vary, but may include the ability to: remove/replace a trustee; oversee investment decisions; resolve deadlock between trustees and between trustees and beneficiaries; and, approve proposed distributions.  While a beneficiary may have some of these same abilities, not all beneficiaries are sophisticated enough to know when to speak up or, if they do, end up in lingering and costly litigation.

The use of a protector is not without headaches – do they owe fiduciary obligations to a beneficiary?  Do they destroy the role of a trustee?

Nonetheless, as discussed in our prior blog, a protector clause can be a worthwhile feature of a trust or will if litigation is a real possibility.  Some have even proposed that every trust should include a protector clause.

Noah Weisberg

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