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Does your estate planning require a trust protector?

Trusts come in a wide range of styles. There are revocable trusts, irrevocable trusts, even incentive trusts, which we wrote about in a post some time ago. This is not a complete list of trust tools available under New York estate planning law. The one that might be most appropriate for your needs can be determined by consulting with counsel committed to understanding what you want to accomplish.

In most cases, the process involves more than drawing up the documents. Take incentive trusts for example. This is a trust that can be useful if you want to provide for heirs after your death, but worry the heirs lack the character to use the resources wisely. The incentive trust can make access to assets contingent on heirs meeting certain conditions, and it is up to a trustee to determine if conditions are met.

The opportunities for possible friction in such scenarios are clear if the beneficiary and trustee are related. To resolve conflict, naming an independent third party might be suggested who can serve as an intercessor. This would be a trust protector.

What the protector is

Historically, the protector role traces its roots to offshore trusts. To ensure greater control over those foreign assets, trust creators would name someone close to home – a friend, close associate, or attorney – and strategically assign them responsibilities that might be harder for other trust parties to fulfill. In recent years, evolution of estate law has seen protectors used in conventional domestic trusts.

What the protector does

Some legal observers offer that use of the word "protector" is somewhat misleading. No state laws specifically mandate that the person in this role "protect" the trust. Rather, the function of the protector depends on how its defined in the trust document. And unlike trust advisors, who are third-party entities who have fiduciary responsibility and can exercise control over trustees, protectors often deal with non-administrative activities and have no fiduciary obligation.

In this context, a protector might be granted power to step in and make changes to the trust that resolve disputes outside of court.

Not all states have laws addressing trust advisors or protectors, so anyone wishing to employ such tools should work with an experienced attorney.

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