Imagine you’ve spent years building a legacy for your family—a home, savings, maybe even a business. You’ve worked with an attorney to create a trust, thinking it’s bulletproof. But life has a way of throwing curveballs. Laws change, family dynamics shift, or maybe your trustee isn’t acting in your family’s best interest or has passed away. What then? This is where a trust protector steps in—a powerful tool that ensures your trust stays true to your wishes, no matter what the future holds.
At Roulet Law Firm, P.A., we’ve seen how trust protectors can make all the difference, giving you peace of mind that your estate plan is both flexible and secure. In this article, I’ll explain what trust protectors are, how they work, why you should consider including them in your trusts, and why you might need to update your plan if you don’t have one.
What Is a Trust Protector?
A trust protector is like a safety net for your trust. Think of them as a trusted overseer—someone you appoint to keep an eye on your trust and make sure it works the way you intended. They’re not the trustee (the person managing the trust’s assets), but they have special powers to step in when needed. Their job is to protect your family’s interests, adapt to changes, and prevent problems before they spiral out of control.
Here’s a simple example. Let’s say you set up a trust for your kids, and your brother is the trustee. He’s honest, but he’s not great with investments. Years later, the trust’s assets are losing value because of his decisions. A trust protector can step in, review the situation, and even replace your brother with a more skilled trustee—without costly court battles. That’s the kind of flexibility a trust protector brings.
Why You Need a Trust Protector
Your trust is a roadmap for your legacy, but roads can have unexpected detours. Here are three big reasons to include a trust protector:
Adapting to Change: Laws, taxes, and family needs evolve. A trust protector can tweak your trust to keep it effective without rewriting it from scratch.
Protecting Your Wishes: If a trustee misinterprets your instructions or acts against your family’s interests, a trust protector can intervene.
Avoiding Court: Without a trust protector, disputes or changes often end up in probate court, which is expensive and public. A trust protector may be able to resolve issues privately and quickly.
How Trust Protectors Work in Your Trusts
Trust protectors can be used in both revocable trusts (which you can change during your lifetime) and irrevocable trusts (which you generally cannot change directly during your lifetime). Let’s break down how they work in each, with stories to show them in action.
Trust Protectors in Revocable Trusts
A revocable trust is a popular tool for avoiding probate and managing your assets if you become incapacitated. Many couples set these up to become irrevocable when one spouse passes, ensuring the surviving spouse and kids are cared for. A trust protector adds an extra layer of control and protection.
Example: The Johnson Family
Meet Tom and Sarah Johnson, a couple in their 60s from Minnetonka, MN. They created revocable trusts to pass their $5 million estate to their two kids. When Tom passed away, his trust became irrevocable and his son Mike became the trustee tasked with managing the money for Sarah. But Sarah noticed Mike was making some risky investments with trust funds, hoping for quick gains. The trust was losing value and Sarah was concerned about Mike's management.
Luckily, Mike's trust included a trust protector, Mike's attorney. The attorney had the power to review Mike's decisions and remove him and replace him with a different trustee if needed; which he did. This saved the trust from further losses. Without a trust protector, Sarah would have had to go to court, airing family drama and racking up legal fees.
Example: The Olson Family
George and Doris Olson each set up revocable trusts that became irrevocable upon their passing for tax-planning purposes. When George passed away, his trust became irrevocable and his long-time assistant became the trustee. For many years she successfully managed the trust for Doris and the family. However, when she was ready to retire, the named successor trustees all were either unwilling or unable to act as the successor trustee. The trust protector was able to name a new trustee and successor trustees.
How It Works: In a revocable trust, the trust protector’s role often kicks in when the trust becomes irrevocable (like after one spouse dies).
Powers granted to a trust protector may include:
- The ability to remove or replace a trustee who’s mismanaging assets.
- The ability to adjust trust terms to account for new tax laws or family needs.
- The ability to resolve disputes between beneficiaries (like kids arguing over distributions).
If your revocable trust doesn’t have a trust protector, you may be leaving your family vulnerable to mismanagement or costly legal fights. Updating your trust to include one is a smart move.
Trust Protectors in Irrevocable Trusts
Irrevocable trusts, like irrevocable life insurance trusts (ILITs), Spousal Lifetime Access Trusts (SLATs), Charitable Remainder Trusts (CRUT or CRAT) or Medicaid Asset Protection Trusts (MAPTs), are designed to protect assets from taxes, creditors, or nursing home costs. Because they’re harder to change, a trust protector is critical to keep them flexible.
Irrevocable Life Insurance Trusts (ILITs)
An ILIT holds a life insurance policy outside your estate, so the payout avoids estate taxes. But what if the insurance policy no longer fits your needs? What happens if a trustee is no longer willing or able to serve? A trust protector can help.
Story: The Martinez Family
Maria and Carlos Martinez, set up an ILIT with a $5 million dollar life insurance policy for their three kids. Their friend, David, was the trustee. Years later, the insurance company raised premiums, making the policy unaffordable. Without a trust protector, the trust would have been stuck, potentially collapsing the policy. But their trust protector, their attorney, Susan, had the power to swap the policy for a more affordable one with similar benefits. This kept the trust’s purpose intact—tax-free wealth for their kids.
Story: The Anderson Family
Tim and Linda Anderson set up an ILIT with a $4 million dollar life insurance policy for their two kids. They named Tim's brother as the trustee. However, when Tim's brother passed away unexpectedly, and the named successor was unwilling to take on the job due to health issues, the trust no longer had a named trustee. Fortunately, their attorney, who was the trust protector, was able to name a successor trustee to step in and take over.
Medicaid Asset Protection Trusts (MAPTs)
A Medicaid Asset Protection Trust can help shield your home and savings from long-term care and nursing home costs while qualifying you for Medicaid. A trust protector ensures the trust adapts to changing Medicaid rules and can provide important tax benefits.
Story: The Thompsons
Ellen Thompson, a 70-year-old widow, created a Medicaid asset protection trust to protect her home. Her daughter, Karen, was the trustee. When new Medicaid rules threatened Ellen’s eligibility, their trust protector, modified the trust’s terms to comply with the updated regulations. This saved Ellen’s home from being sold to cover nursing home costs.
Story: The Johnsons
James and Sandy Johnson set up a Medicaid Asset Protection Trust to protect their home. They named their son, Chris, as the trustee. They named their attorney as the trust protector. By having their attorney as the trust protector, they were able to include provisions in the trust that allowed them to still get the bassis adjustment on the value of their home after they passed away even though it was in an irrevocablet trust. This meant that they not only protected their home from nursing home costs, they were also able to do it while receiving important tax benefits.
Other Irrevocable Trusts
For trusts like special needs trusts or charitable trusts, a trust protector can adjust distributions, change trustees, or update terms to reflect new laws or family circumstances.
In irrevocable trusts, some of the powers often granted to trust protectors include the following:
- The ability to modify trust terms to comply with new laws (like Medicaid or tax changes).
- The ability to replace trustees who may be unresponsive or mismanaging funds.
- The ability to ability to adjust beneficiary distributions in order to meet unexpected needs.
Why Update Your Trust to Include a Trust Protector?
If your trust doesn’t have a trust protector, you’re taking a gamble. Here’s why updating your plan is a savvy move:
Life Changes: Divorce, remarriage, or a child's financial troubles can derail your plan. A trust protector can help keep it on track.
Trustee Issues: Even well-meaning trustees can make mistakes. A trust protector can replace them without drama. Trustees may be unwilling or unable to act. A trust protector can appoint a new one.
Legal Shifts and Changes: Tax and other laws often change. A trust protector can be a cost-effective way to ensure your trust stays compliant.
Common Objections
You might be thinking to yourself, "I already have a trust, I don't need this". Or, "I worked with an attorney to set up my trust so I'm certain that he already included this". The fact is, even the best trust can become outdated. Or maybe you're worried that it is too expensive. At Roulet Law Firm, P.A. we discover your goals for your planning and work with you to custom tailor a plan to help you achieve them; and the investment in a well-designed trust is often far less than the cost of going to court. Or perhaps you didn't know this was possible - now you do. Including a trust protector is legal, ethical and a savvy move that can help protect your family's future.
Who Should Be Your Trust Protector?
Your trust protector should be someone you trust, but not a family member of beneficiary (to avoid conflicts and for tax-planning purposes). Common choices often include:
- A CPA or financial professional who knows your wishes and your finances.
- An attorney familiar with estate planning.
- A trusted friend with good judgment.
At Roulet Law Firm, P.A., we can help you choose the right trust protector and define their powers to match your planning goals.
Take Control of Your Legacy Today
Your trust is your legacy. However, without a trust protector, it's like a house without a security system. Life's uncertainties - changing laws, family disputes, or trustee issues - can put it at risk. A trust protector can help ensure your wishes are honored, your family is protected, and your legacy endures.
At Roulet Law Firm, P.A., we've helped thousands of families in Minnesota and Florida secure their futures with sophisticated, custom-tailored estate plans. With nearly 30 years of experience, I've seen firsthand how trust protectors can help save families time, money and hearteache.
Call us today to schedule a consultation to discuss your estate planning goals at either 941-909-4644 for our Florida office or at 763-420-5087 for our Minnesota office. Or, you can fill out the contact form on this page and a member of our team will reach out to you to schedule your consultation.
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