Is a Trust Protector Right for You and Your Family?

Establishing a trust is one of the most essential estate planning tools available. Traditionally, trusts involve three roles: the settlor (grantor/trustor), the trustee, and the beneficiary. But there's a fourth role we often recommend: the trust protector.

Although trust protectors are common in foreign asset protection trusts, they're relatively new in U.S. estate planning. However, as more trusts are designed to last for generations, estate plans need built-in flexibility.

Key Trust Protector Powers include:

• Remove or appoint trustees for better performance
• Add or remove beneficiaries based on changing family circumstances
• Amend trust terms to adapt to new laws
• Terminate trusts when purposes are no longer served
• Interpret trust provisions and resolve ambiguities
• Exercise voting rights of closely held business interests
• Veto or direct distributions to beneficiaries

Pennsylvania Legal Foundation: Under Pennsylvania law (§7778(b) of the PEF Code), trustees must act in accordance with trust protector directions unless they are "manifestly contrary to the terms of the trust."

Trust protector powers range from administrative oversight to substantive trust modifications. Pennsylvania law provides broad flexibility in defining these powers within the trust document.

Administrative Powers

• Remove or appoint trustees - Change trustee for poor performance or conflicts
• Approve/veto trustee actions - Oversight of major decisions for high-value assets
• Change trust situs - Move trust to state with better laws
• Review accountings - Monitor trust financial performance
• Resolve disputes - Mediate conflicts without court involvement
• Interpret trust provisions - Clarify ambiguous terms

Substantive Powers

• Add or remove beneficiaries - Include new family members or exclude problem beneficiaries
• Amend trust terms - Adapt to new laws or regulatory changes
• Exercise voting rights - Control closely held business interests
• Direct distributions - Control major financial decisions
• Grant powers of appointment - Provide tax benefits and flexibility
• Terminate trust - End trust when purpose no longer served

Important Note: Because of the varied powers a trust protector can hold, you should name someone with appropriate expertise. Different powers may require various trust protectors or a committee approach, as detailed in our guide on why trust and estate planning is worth the time.

Trust protectors are most valuable for long-term trusts and complex family situations. The administration of a perpetual trust that may last for generations can be daunting because no one knows what the future may hold.

Trust Types That Benefit Most:

• Dynasty Trusts - Multi-generational duration requires adaptability
• Generation-Skipping Trusts - Complex tax rules may change over time
• Irrevocable Life Insurance Trusts - May need trustee changes or policy adjustments
• Special Needs Trusts - Government benefit rules frequently change (see our special needs planning guide)
• Charitable Remainder Trusts - Long duration with changing beneficiary needs
• Asset Protection Trusts - May require situs changes
• Testamentary Trusts - Created through wills and need flexibility

Family Situations Indicating Need:

• Blended families with complex beneficiary relationships
• Minor beneficiaries who will reach adulthood decades later
• Family history of addiction or financial irresponsibility
• High-conflict families prone to disputes
• Business-owning families with concentrated assets
• Wealthy families subject to changing tax laws

Key Insight: Pennsylvania follows the UTC Section 808 framework, making it trust protector-friendly. The longer your trust is designed to last, the more valuable a trust protector becomes.

There are several compelling reasons to include a trust protector in your trust-based estate plan:

1. Flexibility and Peace of Mind

Including trust protector provisions ensures your trust achieves your goals despite changing circumstances and laws. They can adapt to new tax legislation, modify distribution terms for changing family needs, and respond to beneficiary life changes. This flexibility helps avoid common estate planning mistakes.

2. Trustee Oversight and Support

Trust protectors provide another level of assurance that trustees properly administer trusts. If the trustee is delinquent, a trust protector may remove the trustee and appoint one better suited to the role. This oversight is particularly valuable for families utilizing trust administration services.

3. Cost-Effective Modifications

If a trust needs modification after the settlor's death, the usual route is through the court system - a complicated and costly process. Trust protectors can prevent court involvement, saving thousands in legal fees while maintaining privacy.

4. Enhanced Long-Term Success

Trust protectors help ensure trusts continue serving their intended purposes across generations, maintaining tax benefits

and preserving wealth transfer objectives. This is especially important for families following comprehensive estate planning strategies.

A settlor may select attorneys, accountants, or other professional advisors as trust protectors. However, you should name someone with appropriate expertise for the responsibilities involved.

Selection by Power Type:

• Tax-related powers - Choose someone who understands tax law impact on trusts
• Distribution powers - Select someone who understands family history and settlor's desires
• Investment powers - Requires financial and investment expertise
• Legal modifications - Benefits from trust law knowledge

Best Trust Protector Options:

• Estate Planning Attorney - Legal expertise and trust law experience (most common)
• Corporate Trustee/Bank - Perpetual existence and professional management
• CPA/Tax Professional - Tax expertise and financial understanding
• Financial Advisor - Investment knowledge and family finance experience

Essential Criteria:

• Professional qualifications and active licensing
• Independence - No family relationship or financial conflicts
• Experience with similar trusts and family situations
• Geographic accessibility and succession planning

Avoid: Family members or beneficiaries due to conflicts of interest that could compromise independent judgment.