The concept of a trust is essentially very simple: One person holds legal title to an asset for another.
Ordinarily there are three parties to a trust relationship: The person who creates the trust (usually referred to as the “settlor”), the person who controls the trust and its assets (“trustee”), and those who are to receive the benefit of those assets (“beneficiaries”).
But at the end of the day, it all comes down to one word: Trust. That word is not just a noun as in “a trust” but it is also still very much a verb as in “I trust you.”
So what steps can a family take in order to ensure their estate planning objectives are met and the lives of their beneficiaries enhanced? Of course, utilising a rigorous selection process centred around the needs of the family at the outset is hugely important, but given that it is often necessary to grant the trustees wide powers in order to achieve those same objectives there is a natural desire for further checks and balances to be introduced. This need can be directly addressed through the appointment of a protector. Often referred to as a watchdog or supervisor, essentially a protector is a person who watches over the trustee. The principal functions of a protector are to: –
- Ensure that the trustee adheres to the provisions of the trust deed and acts in accordance with general trust law.
- Act as an independent intermediary between the trustee and the beneficiaries
- Understand and respect the original wishes and intentions of the settlor.
The role is usually a fiduciary one meaning that the power holder must exercise their powers in the best interest of those to whom they owe their fiduciary duties. In this instance the beneficiaries. Whilst the range of powers that may be given to a protector is wide, they are often limited to simply being able to hire and fire the trustee. By installing such a protector, however, a family can be confident that the trustee can be removed if and when necessary.
But who should be the protector? Historically, this has often been a family member or a family advisor, but such appointments can present difficulties. The appointment of a family member as a protector can create or exacerbate tension within the family, particularly where they are also a beneficiary. Family advisors may not have the level of fiduciary expertise to properly hold trustees to account and are increasingly reluctant to act given the CRS and other reporting implications of doing so. Ideally a protector should have the following attributes: –
- A good knowledge of trusts, trust law and trustee responsibilities.
- Be completely independent and either prevented from or unable to provide additional conflicting services to the family.
- Be well known to the family or have the inclination and the time to become so.
- Be objective and impartial and thus not susceptible to family pressures or biases
In recent years this natural desire for the additional comfort the appointment of a protector can provide, together with the increasing complexities of the role, has led to a surge in the number of firms offering professional protector services. Many of these, however, also offer trustee services. This very fact can lead to a strained relationship between the protector and the professional trustee who may feel that the professional protector is trying to take over or undermine their position. Accordingly, the appointment of a professional protector who does not also offer trustee services is preferable.
