How trust protectors can safeguard grantors’ intents

While trust protectors are often used in irrevocable trusts, one estate lawyer also uses them in revocable trusts.

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Trust protectors are individuals who help protect a grantor’s intent. Martin Shenkman, partner at the estate planning boutique law firm Shenkman Tietz, uses them in revocable as well as irrevocable trusts. The trust protector can be a lawyer, an accountant or a relative who isn’t a beneficiary, and the protector can “demand an accounting from the trustee” and can remove or replace a trustee.

“If you have those powers, and the bad kid is taking advantage of mom or dad’s trust, for example — bam — trust protector removes and puts in place somebody else,” Shenkman said.

Shenkman said financial advisors, who meet with clients more often, are in a better position to find out about this type of situation than lawyers.

“If you’re meeting quarterly with somebody, if they’ve got a ‘bad’ kid, at some point they’re going to complain to you,” he said. “Somebody comes to me and knows I’m billing them hourly, and they’re only there every five years. I’m not going to learn some of that. So there’s a really valuable role for the financial advisor.”

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Spendthrift provisions safeguard family wealth

Another estate lawyer, who said he also uses trust protectors in revocable and irrevocable trust plans, said protectors can be useful even for responsible family members.

“Think in terms of any families or groups of families. There are some who are very responsible. There are some who, even though they’re very responsible, sometimes will get caught with unfortunate circumstances,” such as getting into an accident and being sued or having a marriage not work out, said Kevin Matz, New York-based partner and co-leader of the family office industry group at law firm ArentFox Schiff.

“Maybe you want to have provisions and tools that are in place that are designed to make sure that wealth gets maximized.”

A protector could also, for example, choose a new charity if one of the grantor’s charities ceases to exist, Matz said. That type of decision could also be made by an independent trustee.

Spendthrift provisions in revocable or irrevocable trusts can achieve a similar goal of making sure assets intended for beneficiaries are used in a responsible way, said Joe Sicchitano, head of workplace personal investing and individual solutions at Principal Financial Group. Such provisions describe what assets can be used for and when beneficiaries can access them, such as after earning an advanced degree or getting a job.

“If I have spendthrift provisions in that trust, a creditor that’s trying to go after the beneficiary has limited access to those assets because they are controlled by a spendthrift provision in the trust,” he said.

Different types of protections are available, and their suitability varies depending on whether the goal is to protect beneficiaries or protect against creditors, he added.

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“That’s why trusts are so valuable, because you get to sort of cement those instructions and the intent of the trust long after you’re gone,” Sicchitano said.

Moving the trust to a different state

Changing the state where the trust is located can be another responsibility for the trust protector, Shenkman suggested. The law is more advantageous in states such as Alaska and Nevada, and the trust protector can also eventually switch to an institutional trustee, a more secure method.

“But for the years where you were struggling to save and building your career and your nest egg, you had a cheaper trust,” he added.

Some considerations related to trust protectors and trusts in general involve strategic financial planning decisions, while others — such as whether trustees will be irresponsible or find themselves in trouble — are greatly affected by human factors.

“I’m a tax geek, so I loved all the esoteric tax stuff, but if you don’t deal with the real human, people-type issues, you miss the boat,” Shenkman said.