A trust protector is being utilized more and more with directed trusts to create a powerful tool that supplements the investment and distribution committees. South Dakota was the first state to adopt a trust protector statute in 1997, and not all states have one.
Some advisors draft trust protector functions into trusts domiciled in states without a trust protector statute. Not surprisingly, this is not as strong as drafting trust protector functions into a trust domiciled in a state, such as South Dakota, with a trust protector provision by statute.
Below are several of the most common powers provided to trust protectors by families to provide additional flexibility to their directed trust.
- Modify or amend the trust instrument to achieve favorable tax status or respond to changes in the Internal Revenue Code, state law, or the rulings and regulations there under;
- Increase or decrease the interest of any beneficiaries to the trust;
- Modify the terms of any power of appointment granted by the trust. However, a modification or amendment may not grant a beneficial interest to any individual or class of individuals not specifically provided for under the trust instrument;
- Remove and appoint a trustee, trust advisor, investment committee member, or distribution committee member;
- Terminate the trust;
- Veto or direct trust distributions;
- Change situs or governing law of the trust, or both;
- Appoint a successor trust protector;
- Interpret terms of the trust instrument at the request of the trustee;
- Advise the trustee on matters concerning a beneficiary; and
- Amend or modify the trust instrument to take advantage of laws governing restraints