The Role of Trust Protectors in American Trust Law

“A trust is an arrangement whereby one person (the trustor) transfers property to another person or entity (the trustee) and directs the trustee to hold the property for the benefit of another person (the beneficiary).” These days, trustees often have significant discretionary and administrative powers. The increased use of institutional trustees, as well as the growing sophistication and complexity of modern trust asset management, have induced many settlors to give their trustees greater power and discretion. In addition, many states have enacted statutes, such as the Uniform Trustees’ Powers Act or the Uniform Trust Code (UTC), that confer broad powers upon trustees. However, vesting greater powers and discretion in trustees can also increase the risk that a trustee will fail to carry out the settlor's intent.

One possible solution to the settlor's dilemma is the appointment of a trust protector. A trust protector is a person who the settlor appoints to ensure that the trustee carries out the settlor's wishes. As discussed below, a trust protector can play a useful role in trust administration, particularly if the trust is a large one or is expected to last a long time. However, several potential risks are associated with the appointment of a trust protector. First of all, because the use of trust protectors is still relatively uncommon in the United States, the legal landscape is largely terra incognita. The few statutes that exist provide very little guidance to practitioners and case law is virtually nonexistent. This Article discusses some of the powers that settlors can give to trust protectors as well as some of the duties and potential liabilities that may come with this position. This Article also suggests what role a trust protector might play in connection with various types of trusts.

Part II of this Article examines the status of trust protectors in the United States. Part III identifies some of the powers that a trust protector may exercise and the sources of these powers. Part IV analyses a trust protector's potential duties and liabilities. Part V discusses how a settlor may employ trust protectors to achieve various goals. Finally, this Article concludes by suggesting that the UTC be amended to explicitly recognize trust protectors and set forth their powers and duties.