I am familiar with the concept of Living Trusts, and that each Trust must have a Settlor or Trustor, a Trustee, and one or more beneficiaries, but what is a Trust Protector? Are all Trusts required to have a Trust Protector? If not required, is it a good idea to have a Trust Protector?
Texas, unlike many other states, has probate laws that are fairly straight-forward and which result in rather modest costs for the probate administration of estates. Accordingly, many Texas residents can meet their estate planning needs quite satisfactorily through use of a Will rather than a Trust. Nevertheless, a Trust may be still be a better choice for many Texas residents. And when a Trust is preferred, inclusion of a Trust Protector clause should be seriously considered.
A Trust is nothing more than a document that separates the attribute of legal ownership of property (title) from the other attributes of property ownership. Thus, in a typical “Living” (a.k.a. Revocable) Trust, legal ownership of property is held by a Trustee, for the benefit of one or more beneficiaries. The Settlor (person who owns the property and who creates the Trust) acts as Trustee and retains full control of the Trust (and Trust assets) during the Settlor’s lifetime. The Settlor can revoke the Trust at any time prior to the Settlor’s death. Upon death of the Settlor, the Trust becomes irrevocable and the person(s) designated in the Trust document takes over as Trustee.
A Trust, unlike a Will, is administered privately, that is, without any judicial oversight or supervision. Most Settlors consider this privacy to be a positive attribute of a Trust. Unlike a probated Will, a Trust is not filed with the local court and does not become a Public Record. This arrangement works remarkably well for the overwhelming majority of Trusts. However, there are exceptions.
Trustees have broad powers to administer Trusts, a situation which sometimes can lead to problems. As the saying goes, absolute power corrupts absolutely.
Traditionally, the procedure for reining in an errant Trustee has been to sue the Trustee for breach of the Trustee’s fiduciary duty, among other claims. A lawsuit, which is a Public Record, defeats many of the legitimate reasons for creating a Trust in the first place. Furthermore, litigation, not to mention being expensive, is time-consuming and unpredictable.
There is a better way to handle an errant Trustee. If a Trust document provides for the appointment of a Trust Protector, the Trust Protector can “fire” an errant Trustee. Depending on the other terms of the Trust, a Trust Protector might also be able to appoint a subsequent Successor Trustee to replace the errant Trustee, and/or exercise other powers. A discussion of the wisdom of including these other powers will be left for another day.
Texas residents who already have a Trust should take a moment to review their Trust documents and determine whether the Trust provides for the appointment of a Trust Protector. For those whose existing Trust does not contain a Trust Protector provision, as well as for those who have decided to establish a Trust, use of a Trust Protector be seriously considered. As always, a review or drafting of legal documents should be accomplished with the assistance of an attorney.
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Lapin Law Offices, P.C.
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Dallas, Texas 75380
Disclaimer: The information contained in this publication is provided by Lapin Law Offices, P.C., for informational purposes only and, shall not constitute legal advice or create an attorney-client relationship. The laws and interpretation of laws discussed herein may not accurately reflect the law in the reader’s jurisdiction. Do not rely on the information contained in this publication for any purpose. If you have a specific legal question, please consult with an attorney in your jurisdiction who is competent to assist you.