Settlor’s, Trustee’s and Beneficiary’s – Meet your “Jedi Knight”, Trust Protector

Trust Protectors: An Extra Layer of Protection

Traditionally, a trust has three main participants, a settlor, a trustee, and one or more beneficiaries.  A settlor creates and/or contributes property to the trust.  A trustee manages and holds the property in the trust for the benefit of other people who are said to have a “beneficial interest” in the trust.  Beneficiaries are the people who have those beneficial interests.  For example, a father, acting as a settlor, might create a trust, naming his wife as the trustee, to distribute money for the benefit of their children, who are the beneficiaries of the trust.  However, a fourth participant has increasingly been used in trusts: the trust protector.

 

Historically, trust protectors were mainly used in offshore trusts and rarely in domestic trusts.  A trust protector acts as an extra layer of protection for the settlor.  A trust protector is customarily appointed to supervise the trust and ensure that the settlor’s intent is effectuated.  A trust protector may have the power to modify terms of a trust to ensure that the settlor’s intent is carried out.

 

While some states, like Arizona, have clear statutes establishing the validity of trust protectors and delineating the powers of trust protectors, Florida does not.  See Ariz. Rev. Stat. Ann. § 14-10818.  In fact, no Florida statute explicitly addresses trust protectors.  Only one Florida case has addressed trust protectors, Minassian v. Rachins,  152 So.3d 719 (4th DCA 2014), and it provides some guidance on the issue.

 

In Minassian v. Rachins, the court held that the Florida Trust Code permits the appointment of a trust protector who has the ability to modify the terms of a trust, even though the Code does not explicitly address trust protectors, so long as the appointment and power of a trust protector is stated in the terms of the trust.  The case involved a husband who created a trust and named both himself and his wife as co-trustees.  The husband specifically wanted the trust, which was called the “Family Trust,” to be administered for the benefit of his wife, i.e., his wife was the beneficiary of the Family Trust.  He anticipated his children would be upset with his decision, so he created a provision for appointment of a trust protector who could modify the Family Trust’s terms in the event the trust was found to contain any ambiguities.  After the husband’s death, his children claimed that the wife had breached her fiduciary duties as trustee and demanded an accounting.  The wife argued at trial that the children did not have standing because they were not beneficiaries of the Family Trust, which was set to terminate upon her death and distribute any remaining principal and income to new trusts for the children’s benefit.   The children argued that the provisions did not create a new trust, but instead created separate shares in the existing Family Trust for each child upon the wife’s death.  The trial court denied the wife’s motion and ruled in favor of the children.  As a result, the wife appointed a trust protector, pursuant to the terms of the trust, to clarify and correct any ambiguities that would frustrate the husband’s intent in creating the trust.  The trust protector amended the terms of the trust to state that Article 12 was meant to create a new trust with separate shares upon the wife’s death.  The children challenged the trust protector’s changes, and the trial court sided with the children.

 

On appeal, the Florida Fourth District Court of Appeal first held that the trust provision creating the trust protector was valid under Florida law because, under Florida Statute § 736.0808(3), “[t]he terms of a trust may confer on a trustee or other person a power to direct the modification or termination of the trust.”  The appellate court further held that the trust protector’s amendments were within his powers because they effectuated the intent of the husband, and there was some ambiguity in the terms of the Family Trust.

 

While the validity of trust protectors and the parameters of their powers has not been well-defined by Florida statutes or courts, Minassian v. Rachins sets a precedent for Florida courts upholding the appointments of trust protectors and their ability to modify the terms of a trust to effectuate the intent of the settlor.  This is good news for settlors who want additional assurance that their intent will be carried out when they are deceased, particularly if they believe it likely that someone will challenge the trust the create.

 

This article is intended to be a brief overview of Florida’s stance regarding trust protectors.  Those interested in learning more about trust protectors, including the appointment of a trust protector or a challenge to such an appointment, should not hesitate to contact the attorneys of Chepenik Trushin LLP, who are ready, willing, and able to assist with your estate planning and probate litigation needs.