CPAs as Trust Protectors: Helping Clients Build Flexibility and Additional Oversight into Their Trusts Is a Manageable, Meaningful New Niche

EXECUTIVE SUMMARY * Clients who want their beneficiaries to avoid probate often place assets in trust. Many CPAs are reluctant to take on being a trustee, which is a time-consuming responsibility. An alternative is to be a third-party alongside a professional trustee. CPAs are highly qualified for the trust protector role because they have the client's Confidence, the right skill sets, a tax background and an understanding of the client's family dynamics. * A trust protector has contractual powers (described in the trust document) to assist in guiding both corporate trustees and trust beneficiaries through legal and tax complexities to realize the trustor's original intent. Using a trust protector provides an added safeguard over the actions of an appointed corporate trustee. The concept is common in offshore asset protection planning. * A trust protector can generally remove and replace a trustee; terminate the trust; change the situs of administration: resolve co-trustee deadlocks or beneficiary-trustee disputes; veto investment decisions; and redirect trust distributions or amend administrative provisions and trust terms based on unforeseen circumstances in the beneficiaries' lives or changes in law. * Few statutes define and regulate the role of trust protector. and only a few domestic jurisdictions recognize it (Alaska, Delaware, Idaho, South Dakota and Wyoming). There is little domestic case law to address issues such as who is checking the trust protector's powers, the trustee's role if those powers are broad, or terms of succession for the role. * Because the role is not defined in most states, there is potential legal liability. Contentious beneficiaries could argue that a protector acted imprudently or improperly. Other drawbacks to be managed include an uncertain fee structure and the always-present issue of uncertain timing. ********** Clients who want their beneficiaries to avoid the stress, expense and delay of probate often place assets in trust. Increasingly they are asking their CPAs in both public practice and industry to act as trustees. However, many CPAs are reluctant to take on the fiduciary responsibility of being a trustee for several masons: They lack adequate infrastructure and staff for trust administration; they are inexperienced in trustee work, especially for real estate and other nonliquid assets; and they are uncertain about how to bill appropriately. An alternative to acting as trustee is to be a alongside a professional trustee. This article will examine the basic definition and duties of a trust protector, offer reasons CPAs are an excellent fit for the trust protector role, describe potential pitfalls of the arrangement and their solutions, and suggest why CPAs should want to act in this capacity. FROM PLANNING TO PROTECTION A trust protector is a third party (neither trustor nor trustee) who has been granted contractual powers to protect the terms of a trust. The concept--relatively new for onshore trusts--is common in offshore asset protection planning. A trust protector can assist in guiding both corporate trustees and trust beneficiaries through legal and tax complexities to carry out the client's original intent. The idea has grown in popularity in reaction to the increasingly unpredictable nature of changing law and tax policy. A trust protector's authority lies in the powers and duties spelled out in the trust document (the contract). When the client uses a trust protector, the main trustee becomes an excluded fiduciary in those areas in which the trust protector is empowered. Generally, trust protector powers include some or all of the following: * The ability to remove and replace a trustee. The most common--often the only--power of trust protectors is the ability to replace a trustee who is unresponsive to the needs of the beneficiaries or who is not performing to the standard required by the trust's investment policy statement (IPS). …