The appointment of a trustee is one of the more important decisions that clients establishing trusts face because the trustee controls the client/creator’s trust assets. According to law, the trustee serves as the trust’s fiduciary, holding and investing the assets for the benefit of the trust beneficiaries. This means that the trustee has both a legal and ethical duty to act on behalf and for the benefit of a trust’s beneficiaries.
But what happens when a fiduciary does not control the trust properly or act for the benefit of the trust’s beneficiaries? Unless the creator can retain some direct control over the trust or the fiduciary—an option that is often not possible when making completed gifts—attempting to cajole the trustee to follow the creator’s intent, engaging in litigation to force the trustee to account, or seeking to remove the trustee entirely are often unpalatable options and may not lead to the desired response. An uncooperative trustee may not be able to be persuaded into behaving properly, and absent clear wrongdoing or malfeasance, courts are often unwilling to discipline or to remove a fiduciary.
When seeking judicial removal of a trustee, courts are often mandated to hold hearings to determine whether the offending conduct rises to the level of requiring discipline or removal. Even when wrongdoing of a trustee is demonstrated, the court may choose not to remove the trustee if it is determined that the act is not egregious enough to warrant removal. This could mean that a beneficiary or a co-fiduciary might spend lots of money unsuccessfully seeking to remove or hold a trustee accountable. See In re Estate of La Corte, 7 A.D.3d 909 (2004) (declining to remove a co-trustee for comingling trust and personal assets or to award the petitioning co-fiduciary attorneys’ fees from the trust for commencing the action to correct the offending co-trustee’s actions).
So, what can a trust’s creator do to help ensure that their chosen trustee follows their intent and that recalcitrant trustees can be removed without judicial intervention? One powerful means of ensuring the trustee’s compliance in administering a trust is by naming a “trust protector” in the trust instrument. A trust protector is an appointed officer in a trust and is typically a trusted party (such as an accountant or attorney) who can act on behalf of the trust to enforce its provisions and to make changes to correct abuses or mistakes. While trust protectors can be added to any trust or even to powers of attorney, they are typically found in irrevocable trusts where the creator has given up control of the assets to make a completed gift.
The trust protector is often not a fiduciary and may or may not be compensated for their role. This means that the trust protector may not be under any duty to act in their supervisory role. However, as an officer appointed to oversee the trustee, a trust protector with the power to remove and replace a trustee is uniquely positioned to ensure that the trustees follow the trust’s intent and that the needs of the trust’s beneficiaries are being met. Trust protectors are sometimes granted the ability to supersede the trustees in making certain decisions regarding the trust and its assets or trustee commissions. Further, trust protectors may also be granted power to make changes to the trust instrument’s language to comply with current tax law.
While not a panacea for all trust abuses, trust protectors can provide important oversight functions and peace of mind. If you have any questions about including a trust protector in your current trust or would like to discuss creating a trust with a trust protector, the attorneys at DarrowEverett LLP are here to help you and your family with all your trust and estate planning needs.
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