The Trustee and the Trust Protector: A Question of Fiduciary Power - Should a Trust Protector Be Held to a Fiduciary Standard?

Traditionally, the individuals and entities involved in a trust are the grantor, the beneficiary, and the trustee. Under the trustee’s fiduciary umbrella there may be other advisors, including attorneys, portfolio managers, and trust administrators. In the past decade, however, another party to the trust has emerged, signifying one of the biggest recent developments in American trust law: the trust protector.Not to be confused with trust advisors, which have been around for decades, trust protectors first emerged to enable settlors of offshore trust assets to maximize their control while still sheltering the assets from domestic creditors. The role of trust protector has recently been expanded into the realm of domestic trusts. The trust protector is often thought to be a living extension of the deceased grantor: after the grantor is gone, the trust protector will represent the grantor’s interests in executing certain duties. These can include virtually anything, but most often involve the removing and appointing of trustees, adding or deleting beneficiaries, directing trust distributions, changing the governing law of the trust, or directing trust investment decisions.As with any recent development of law, there of course lie unanswered questions. One of the biggest involves liability. A trustee is held to a fiduciary standard; so what, exactly, are the duties owed by this new entity, the trust protector? Is the trust protector a fiduciary or something else?This paper first discusses the history and development of the trust protector. The paper then reviews and analyzes published scholarship, knowledgeable commentary, recent trends of the law, existing state statutes, as well as policy issues and what little case law exists, including international cases. The paper analyzes reasons why a trust protector should be held to a fiduciary standard, as well as counter arguments to that effect. The paper concludes that the trust protector does not have immunity from liability; trust protectors are in fact fiduciaries and as such owe the highest level of care to a trust.