The Changing Nature of Trusts
Decades ago, trusts were simple, static structures with little complexity. A trust creator, seeking to provide funds to future generations of family members or to protect assets from creditors — among many reasons –might set up a trust through a corporate trust company because of its reputation and durability, its perceived skill as an investment manager, or because a banking relationship already existed within a family. Once established, the trust was difficult to modify. Depending on the State in which the trust was established, it could be difficult to remove the corporate trustee, change the basic terms of the trust, or alter how a trust beneficiary might receive distributions from the trust.
Modern Trust Administration Involves Many Parties
Today, with the evolution of state law, and demands of sophisticated clients for more control, trustees often share – or bifurcate — their authority with other named parties who participate in the trust administration. Delaware, in 1986, was the first state to codify this so-called directed trust that allowed a trust to have, for example, an “investment advisor” with exclusive authority to manage trust assets, a “distribution advisor” with exclusive authority to consider a beneficiary’s circumstances in making trust distribution decisions, a “special assets advisor” to manage operating businesses or real estate, or a “tax advisor” for tax-sensitive decisions.
The Role of a Trust Protector
With so many parties potentially involved in trust administration, many modern trusts include a trust protector, who strategically oversees the general non-administrative operation of the trust. A trust protector may be in place to help ensure that all parties are acting responsibly within the provisions of the trust, and that the interests of the beneficiaries are protected against imprudent or unethical behavior. A trust protector can have specific enumerated powers to change the jurisdiction of a trust or the identity of a trustee, to modify the administrative provisions of a trust, or to change the composition of the class of beneficiaries.
Why You May Need an Independent Fiduciary
An independent fiduciary – a trust protector, a directed trustee, a distribution advisor or another defined fiduciary position – can serve a critical role for a client whose need for flexible, bespoke trust administration services falls outside of the realm of most large corporate trustees and often beyond the ability of most nonprofessional family members. It may be comforting to choose a family member for a fiduciary role, but it’s unusual for family members to have experience in trust administration and planning. At the other extreme, trust corporations tend to shy away from the modest, infrequent, or limited roles that an independent fiduciary can play for a client. Corporate trustees seek visibility into trust assets through custody, and often aspire to manage a trust’s investments. Additionally, corporate trustee business models rarely allow for the flexible, client-focused roles an independent fiduciary plays, such as that of a trust protector for sophisticated trust clients.