Advanced Planning Strategies

The very purpose of a trust protector is to maintain a degree of flexibility in irrevocable trust planning by reserving to the protector powers the grantor could not hold without compromising the estate tax exclusion or asset protection associated with the trust. The ideal trust protector is someone who would act exactly as the grantor would act in a given situation. Protector nominees are typically family members, trusted friends, or professional advisors. Absent evidence of some prearrangement with the grantor, the identity of the protector and the powers granted the protector do not cause a gift to be incomplete. If the protector is related or subordinate to the grantor within the meaning of Section 672(c), certain powers granted the protector may cause the trust to be treated as a grantor trust for income tax purposes. Powers of trust protectors include the power to amend or restate the trust to carry out the grantor's intent, to address tax law changes and to correct scrivener's errors; the power to remove and replace trustees; the power to approve or veto distributions from the trust; and the power to add beneficiaries. A grantor will likely want to reserve the power to remove and replace the trust protector similar to the manner in which the grantor typically reserves the power to remove and replace the trustee.