When is a Trust Protector a Fiduciary?
40 Pages Posted: 28 Apr 2015
Date Written: March 20, 2015
The use of trust protectors has become increasingly popular in the past twenty years. This is largely due to the fact that settlors can use trust protectors to provide more flexibility in trust management, especially for long-term trusts. However, the use of trust protectors is not without some risk. First of all, the legal status of trust protectors is not explicitly recognized in some states. Furthermore, even in those states which do recognize the legality of trust protectors, the nature and extent of their powers is sometimes not always clear. Finally, there is the vexing question of whether trust protectors owe any fiduciary duties, and if so, what the nature of these fiduciary duties may be. In this Article, I will address a number of issues relating to the fiduciary duties of trust protectors.
Part I will briefly discuss the origins and legal status of trust protectors in the United States. Part II will examine the fiduciary duties of trustees and trust advisors in order to determine whether any of the fiduciary obligations imposed by law on other trust officers may be applied to trust protectors as well. In addition, Part II will consider statutes and case law on the subject in both foreign and American jurisdictions. Part III will explore the question of fiduciary duties in more depth and will conclude that the law should impose certain fiduciary duties on trust protectors, such as the duties of good faith, loyalty, impartiality, and independence. At the same time, it concludes that settlors should be given the power to modify these duties through appropriate language in the trust instrument. Finally, Part IV will suggest several drafting solutions that may reduce some of the uncertainty about the nature of a trust protector's fiduciary responsibilities.
Keywords: Trust and Estates, trusts, trust protector, trust management, legal status, power, fiduciary duty, United States of America, fiduciary
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