Trust protectors (also known as trust advisors) are becoming a common feature of irrevocable trusts. But what is a trust protector? 

A trust protector, as defined in the Tennessee Trust Code, is a person who is not a trustee but who nonetheless possesses certain powers over a trust. These powers are typically conveyed by the trust instrument itself, but may also be granted by the “qualified beneficiaries” of the trust or by a court. Although the Tennessee Trust Codes contemplates a beneficiary being a trust protector, the term is normally reserved for third parties who hold the requisite powers.

What powers may a trust protector possess? The statute contains a long, but non-exclusive, laundry list. Some of the more useful powers mentioned in the statute are as follows:

  • Modify or amend the trust instrument for tax or other reasons;
  • Appoint a successor trust protector or trust advisor;
  • Review and approve a trustee’s trust reports or accountings;
  • Change the governing law or principal place of administration of the trust;
  • Remove and replace any trustee, trust advisor, or trust protector;
  • Consent to a trustee’s action or inaction in making distributions or investments;
  • Veto or direct all or part of any trust distribution;
  • Increase or decrease any interest of the beneficiaries in the trust;
  • Grant a power of appointment to one (1) or more trust beneficiaries;
  • Terminate or amend any power of appointment granted in the trust;
  • Perform a specific duty or function that would normally be required of a trustee;
  • Advise the trustee or cotrustee concerning any beneficiary;
  • Direct the acquisition, disposition, or retention of any trust investment;
  • “Decant” one trust into another trust; and
  • Terminate all or part of a trust.

Possession of any one of these powers by a non-trustee is enough to make that person a trust protector. A trust protector need not–and in many cases, should not–be given all these powers. A trust protector may exercise its power in its sole and absolute discretion, and its decision is binding on all other persons.

There are numerous benefits to naming a trust protector. Trust protectors can be used to inject flexibility into otherwise rigid irrevocable trusts. They can make trusts more adaptable to unforeseen circumstances, such as changes in the trust or tax laws. They can serve as a check against trustees, particularly corporate trustees. Trust protectors can exercise rights and oversight on behalf of impaired beneficiaries. Finally, a trust protector provides a means of ensuring the grantor’s purposes in establishing a trust are carried out. As such, trust protectors are ideally suited for trusts that are designed to last for multiple generations.

Source: T.C.A. § 35-15-1201

Posted by Joel D. Roettger, JD, LLM, EPLS