A Springing Protector: The Best of Both Worlds

Protectors seem to have become the ‘magic bullet’ of trusts, making it possible to not only adapt ‘unchangeable’ trusts to changing circumstances, but even to rectify drafting errors, and everything in-between. And while protectors are hastily associated with offshore asset protection trusts, the fact is that they can be useful in almost any type of trust that is anticipated to carry on for long periods of time. Does this mean that every trust should have a protector?  

The level of awareness as well as the use of trust protectors has grown exponentially over the past few years, and they are certainly not restricted to asset protection trusts. More and more attorneys and settlors are using protectors in family trusts, life insurance trusts, and other estate planning trusts as they become aware of the tremendous flexibility that can now be incorporated into an otherwise inflexible, irrevocable trust. This opportunity gives settlors and attorneys alike a great amount of comfort, since changes of the law, of circumstances, or of the heart can usually be dealt with through a protector’s exercise of his powers.

In the typical situation, the trust is drafted and a protector appointed according to the relevant provisions of the trust. The protector may be domestic (situated in the same jurisdiction as the trust) or ‘offshore’ (situated in a jurisdiction foreign to that of the trust).  In either event, I firmly believe – and it is now commonly accepted – that unless the protector’s powers are purely personal, which then severely limits the protector’s value to the trust, the protector acts in a fiduciary capacity to the trust. As such, he has varying degrees of duties, depending on the extent of the powers given him. Despite that capacity, on a practical basis, the protector is most often in a ‘standby’ position until he is needed, for instance: where a trustee requires the protector’s consent to a certain act; where a beneficiary complains about the trustee and seeks redress or removal; or where a change of trust situs is called for.

The great majority of trusts, if properly drafted at the outset, usually have no need to call upon the protector unless and until such an event occurs, which may be often, seldom, or never. In most cases, the trust may carry on for years without the appointed protector being required to perform any but a truly nominal function.  

Despite the standby nature of the position, however, the protector still charges a fee (for standing by), and his very presence invites the question of whether, as a fiduciary, he has the duty to take some initiative, such as to periodically monitor the performance of the trustee and the activities of the trust. To do so, however, would involve interaction with the trustee, such as requesting records or even meetings. Is this time and expense really necessary if the trust is running smoothly? As one commentator put it: “The strongest criticism of trust protectors is that their involvement complicates the trust administration and makes it more expensive.” Materials given to settlors and their attorneys by a Gibraltar trust company include the statement: “Arguably a protector can give greater security but this also creates a greater administrative burden for the trustees, and consequentially increases costs. Use of a protector can also result in some delay in the trustees exercising their powers and discretions whilst the consent of the protector is sought”.  

This, of course, does not mean that it is better not to have one, since a protector as suggested above can have a huge bearing on the flexibility of a trust and can frequently avoid substantial legal fees and delays resulting from trustee petitions or beneficiaries’ complaints. Perhaps the best of both worlds is to have the benefit of a protector on those special occasions when we need one, but to avoid the accompanying expense, exposure, and involvement in the administration when the trust is functioning as desired. There is a way to accomplish this.  

The trust could be drafted omitting the concomitant appointment of a protector, but providing for the appointment of one in the future. My firm successfully uses and recommends a provision to be included in the original version of the trust allowing for a ‘springing’ protector. And if the subject trust is an offshore asset protection trust, the appointment would be restricted to one who is not a person or entity that would be subject to US (or the settlor’s) court jurisdiction.  

Such a provision would give someone (the trustee or some other person or firm) the power to appoint a protector for the trust where none existed previously, thus establishing and filling the position only when needed. The provision could allow for the appointment of a protector for a specified period of time, or permanently, and in certain cases, could give the trustee (or another party or parties) the power to remove and replace protectors, or revoke the appointment. Such a provision should include all the necessary terms and conditions for protector powers, compensation, length of appointment, rights, removal and/or replacement etc. Attention to all of these issues will enhance the flexibility, integrity, and asset protection qualities of the trust, without the need to fill the position before it is necessary.

 For instance, purely by way of illustration and not as suggested language, we consider the following as a preamble to the detailed provisions that may apply, at the discretion of the appointing party, where a springing protector provision is included in the trust: “Article ____:  Appointment of a Protector" 

The Trustee [or some other party designated by the settlor] making specific reference to this power, and having in mind the provisions of this Article and the recommendation of the Board of Directors of the law firm of Bove & Langa, P.C., of Boston, Massachusetts, USA, or its successor in interest, shall have the power to appoint at any time or from time to time a Protector of the Trust, or of any Trust created hereunder, and in any such appointment said Trustee [or other party], in its absolute discretion, shall set forth the scope of such appointment, including without limitation, the rights, powers, and responsibilities of the Protector and successors, which may include rights, powers, and responsibilities similar to those conferred upon the Trustee under this instrument. Such appointment may include a specified time period of the appointment and terms of removal of the Protector. An ‘appointment’ under this Article may include the written designation of a successor Protector who may serve in the event of the next vacancy in said office.  Unless and to the extent otherwise provided in the appointment of a Protector under this Article, the following provisions of this Article shall apply to the office of the Protector:” [Further provisions governing the position of the protector would follow.] 

Thus, if and when the protector is appointed, the terms of the appointment may be tailor-made to the purpose, which may end when it is accomplished, or, of course, may continue for the life of the trust if desired. With this added flexibility, the settlor can rest assured that their trust will be able to continually adjust to suit the future needs and circumstances of the beneficiaries, while keeping within its stated purposes.

Alexander A Bove
Alexander A. Bove Jr. of Bove & Langa, is an internationally known and respected trust and estate attorney with over thirty-five years of experience. He is Adjunct Professor of Law, Emeritus, of Boston University Law School Graduate Tax Program, where he taught estate planning and advanced estate planning for eighteen years. Prior to that he taught estate planning for four years at Northeastern University Law School. In 1998 he was admitted to practice as a Solicitor in England and Wales. In addition to his J.D. and LL.M. degrees, in 2013, he earned his Doctorate in Law from the University of Zurich Law School.