In
trust law
A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the " set ...
, a protector is a person appointed under the
trust instrument A trust instrument (also sometimes called a deed of trust, where executed by way of deed) is an instrument in writing executed by a settlor used to constitute a trust. Trust instruments are generally only used in relation to an ''inter vivos'' t ...
to direct or restrain the
trustee
Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...
s in relation to their administration of the
trust.
Historically, the concept of a protector developed in
offshore jurisdictions where settlors were (perhaps understandably) concerned about appointing a
trust company
A trust company is a corporation that acts as a fiduciary, trustee or agent of trusts and agencies. A professional trust company may be independently owned or owned by, for example, a bank or a law firm, and which specializes in being a tru ...
in a small, distant country as sole trustee of an
offshore trust
An offshore trust is a conventional trust that is formed under the laws of an offshore jurisdiction.
Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring (or 'settling') a ...
which is to hold a great deal of the settlor's wealth. However, protectors now form a part of mainstream
tax planning in most jurisdictions which recognise trusts.
There are a number of reasons that a settlor may wish to appoint a protector in relation to a trust:
* protectors allow a great degree of flexibility when dealing with changes in circumstances, including both factual circumstances (death, premature divorce, previously unknown children) and legal changes (any legal changes, but most frequently changes to applicable revenue laws);
* the settlor may be concerned that the trustee may not pay sufficient attention to his wishes;
* the settlor wishes certain powers to be withheld from the trustees; or
* the settlor wishes a third party to act as a main point of contact, between the beneficiaries and the trustees.
The powers vested in the protector vary both according to the
proper law of the trust and the terms of the trust instrument. They include power to:
# remove and appoint trustees;
# approve a change of proper law;
# approve the addition or removal of beneficiaries;
# approve proposed trust distributions;
# approve the appointment of an agent or adviser either generally or in relation to specific matters;
# approve investment recommendations;
# appoint replacement protectors; and
# terminate the trust or approve the termination of the trust.
Conceptually many commentators have difficulty with the idea of a protector, as this undermines the role which in law has historically been fulfilled by the trustees. As protectors are a relatively recent innovation in trust law,
case law
Case law, also used interchangeably with common law, is law that is based on precedents, that is the judicial decisions from previous cases, rather than law based on constitutions, statutes, or regulations. Case law uses the detailed facts of ...
is scant. Is it not even clear if as a matter a law a protector would owe
fiduciary duties
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exam ...
to the
beneficiaries
A beneficiary (also, in trust law, '' cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example, the beneficiary of a life insurance policy is the perso ...
(although in practice, many trust instruments expressly state that they shall).
[Although legislation in Idaho seems to assume that in that state at least a protector is a fiduciary.]
It is sometimes suggested that where the protector is too close to the beneficial interest in the trust (for example, if the protectors have power to confer benefits upon themselves, directly or indirectly) this may destroy the essential nature of the trust. If the protector has power to grant beneficial interests in the trust fund to the
settlor, this may have disastrous tax consequences in some jurisdictions..
External links
Considerations when acting as a Protector by Andrew Law, Published: 1 May 2007
Footnotes
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Wills and trusts