Bite-Sized Bits of Knowledge

Hi, welcome back to another dose of Bite-Sized Bits of Knowledge, where we give you meaningful information in a short amount of time. Today, we’re going to talk about trust protectors. 

Trust protectors are also commonly referred to as trust advisors. Either way, we’re talking about the same thing. In particular, what they are is a role that somebody plays in the trust that has, I think, really significant impacts. Historically, they derive from estate tax planning, particularly where a neutral person would be able to change the powers that a grantor retained in order to toggle on or off the estate tax inclusion or exclusion of that trust, or just automatically toggling on or off the estate tax inclusion or exclusion of the trust without the powers. It was an estate tax planning tool. 

More currently, because most people don’t have $13 plus million dollars in unified credit, double it if you’re married. Note that that goes down to $5 million in tax for inflation, say $7 million to round numbers. Come 2026, double it if you’re married, that’s $14 million. Most people don’t have $14 million. This becomes more of a planning tool as a result. The two ways it’s a planning tool are, number one, flexibility, number two, oversight.

In terms of flexibility, trusts are revocable, typically. If you want them to be revocable, they’re typically revocable until death or until you revoke the right to amend or evoke it. Once it becomes irrevocable, it’s much more difficult to change. Going through the court system has a high standard of proof to show the grantor’s intent as well as the law allowing the changes. You don’t want to go to court to amend a trust. It’s hard, and it’s not likely to be changed. The way to get flexibility is by using a trust protector, that that person can change it within the confines of the document, which will, of course, be flexible enough to enable any changes that would be necessary to meet the grantor’s intent outside of court. I cannot express to you how much time and money and frustration you’ll save by having this role built in from the inception of the trust. 

Secondly, in addition to flexibility, you have oversight. In terms of oversight, you have this neutral person whose sole job is really to oversee the trustees. Where you have trustees, they have a fiduciary duty, we’ll talk more about that in a minute, to administer the trust for the benefit of the beneficiaries. Sometimes people go astray, they don’t know what they’re doing, or they’re doing it wrong. For example, a trustee is moving all the assets into Bitcoin. That’s a no-no for so many reasons. That’s a no-no. The Trust Protector could theoretically go in and remove that trustee for not doing their job, and appoint the next one designated, and so forth, depending on what’s in that document. 

Another potential reason for removing the trustee would be maybe because the trustee is losing capacity. Maybe they’re not able to act on behalf of the trust prudently. So it’s just nice to have some oversight. It could be tailored and structured as you desire, but it’s important to understand the two main benefits of a trust protector are one, flexibility, two, oversight. We strongly recommend that you include one, even if it’s not for estate tax planning. Planning includes forward-looking and just being able to navigate changes in the law, changes in the tax code, things that you may just need to address. This role can help a lot. I hope that you found this helpful. And thanks for tuning in. And thanks for stopping by. And stay tuned for more.