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Trust Law/Level II · Do you need one?/2.3 Choosing the people/Lesson 3

Protectors and advisers

Adding a third party to check, guide, or control your trustee

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Cheapest is none: a revocable trust you control needs no protector, because you can amend or revoke it yourself. Catch: once the trust is irrevocable, changes need the document’s own mechanism, beneficiary consent or a court.
  2. For routine fixes in an irrevocable trust, interested persons can sign a nonjudicial settlement agreement (UTC §111) covering interpretation, accountings, or appointing and paying trustees, without a protector or court. Catch: it must not violate a material purpose.
  3. If a long-running trust needs a check, name a trusted family protector with narrow powers, such as removing and replacing the trustee, rather than broad ones. Catch: Delaware treats protectors as fiduciaries unless the document says otherwise (12 Del. C. §3313); Alaska does not.
  4. Under the Uniform Directed Trust Act (2017), a family trust director can keep investment decisions while a directed trustee handles administration; that trustee is liable only for its own willful misconduct. Catch: the state governing the trust must have enacted the Act or similar law.

MaterialsA copy of any existing trust document you may haveYour state’s statute on directed trusts or trust protectors (some states have enacted the Uniform Directed Trust Act; others have their own rules)A list of potential candidates for protector or adviser roles

Wonder

  1. Who exactly can I give power to, and what are their limits?
  2. Does a protector owe the beneficiaries a legal duty of loyalty, the way a trustee does?
  3. What happens if my protector and my trustee disagree?

Explore

  1. A trust protector is a person, other than the trustee, given specific powers by the trust document, such as removing or replacing trustees, amending administrative terms, changing the governing law, or approving distributions. The protector does not manage the assets day to day; the role is a check on the trustee, and the protector has only the powers the document grants. Protectors appear most often in trusts governed by US states with detailed trust statutes, such as Delaware and Alaska, and in offshore trusts. Whether a protector must be independent depends on the document and local law.
  2. A directed trust works differently. Here the trust document gives someone other than the trustee, often called an investment adviser or distribution adviser, the power to direct the trustee on how to invest or when to pay. The Uniform Directed Trust Act (2017), enacted in a number of US states, calls this person a ‘trust director’. The trustee still holds legal title and carries out the instructions. Under the Act, a directed trustee that follows a direction is liable only for its own willful misconduct, and must not follow a direction that would amount to willful misconduct.
  3. Whether a protector is a fiduciary depends on the document and state law, and the defaults differ. In Delaware, a protector counts as an ‘adviser’ and is a fiduciary when exercising its powers, unless the document says it acts in a non-fiduciary capacity. In Alaska, subject to the document, a protector is not liable as a fiduciary for acts taken in that role. Under the Uniform Directed Trust Act, a trust director has the same fiduciary duty as a trustee in a like position. A fiduciary owes loyalty and care to the beneficiaries, so the label decides how far the protector can be held to account.
  4. Delaware’s trust statute (12 Del. C. §3313) defines advisers broadly: anyone the trust document gives authority to direct, consent to or disapprove a fiduciary’s investment, distribution or other decisions. The statute says ‘adviser’ includes a ‘protector’, whose powers may include removing and appointing trustees, amending the document to achieve favourable tax status or to make administration more efficient, and changing powers of appointment given to beneficiaries. Other states use different words and set different defaults, so the same title can mean different things in different places.
  5. Common protector powers include removing a trustee, for example one who performs poorly or whom the family no longer trusts, and appointing a replacement. A protector may also be able to change the governing law, which can move the trust’s administration to another state, or amend administrative provisions that have become outdated. These powers come only from the document. They do not usually let the protector take trust assets for themselves, and some statutes add limits: Alaska’s, for example, does not let a protector grant a beneficial interest to anyone the trust instrument does not already provide for.
  6. Before relying on these roles, check your state’s statute on directed trusts and protectors. Some states have enacted the Uniform Directed Trust Act; others have their own rules, and where no specific statute applies, a protector’s powers rest mainly on the drafting and on case law. States that still use the original Uniform Trust Code §808 treat a non-beneficiary who holds a power to direct as presumptively a fiduciary, though the document can change this. Confirm that the powers written into the document match what is intended, and who can hold the protector or adviser to account.

Key facts

  • The Uniform Directed Trust Act (2017), enacted in a number of US states, lets a ‘trust director’ direct a trustee; the directed trustee is liable only for its own willful misconduct.
  • A protector’s fiduciary status depends on the trust document and state law; it is not automatic.
  • Delaware law (12 Del. C. §3313) says an ‘adviser’ includes a ‘protector’, and treats advisers as fiduciaries unless the trust document says they act in a non-fiduciary capacity.
  • Protectors commonly hold powers to remove trustees, amend administrative terms, change governing law, or approve distributions.
  • In directed trusts, the adviser directs investment or distribution decisions, while the trustee retains legal title and administrative duties.
  • Protectors and advisers appear most often in trusts governed by US states with detailed statutes on them, such as Delaware and Alaska, and in offshore trusts.

Exercise nine, six, three, one

9CollectGather 9 specific powers or actions you might want to give a third party (protector or adviser) over your trust assets or management decisions.
6ClusterSort the 9 powers into 6 categories: removing or appointing people, investments, distributions, amending terms, governing law or location, and consent or information rights.
3DistillReduce the 6 categories to 3 core areas of oversight you truly need for your family’s long-term stability.
1CrystallizeWrite 1 sentence defining exactly which role (protector vs. adviser) fits your primary concern and why.

Fact check

Dates, figures and claims checked against the published sources listed below.

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