Probate & Trust Law Section Conference Manual ... - Minnesota CLE

Additionally, many advisors are drafting “directed” trusts in states without directed trust
statutes, and exonerating the administrative trustee in the trust document, or in some
instances by separate agreement. The exoneration clauses and agreements vary and are
oftentimes limited to only inter vivos trusts. In certain states, these exoneration
agreements are void against public policy. 92 Typically, with or without state statutes,
documents are drafted with flexibility so that all committees and administrative functions
can be combined into one “full trustee” function at any time, then possibly revert back to
committee status at some point in the future (for instance, as a result of the death,
disability and/or retirement of committee members).
4. TRUST PROTECTOR
a. Introduction: Although commonly used in offshore trusts, the use of trust protectors is
just starting to become popular in domestic estate planning. The typical purpose of a trust
protector is to provide flexibility to an irrevocable trust. A trust protector is generally an
individual (or a committee of individuals, or an entity) with specified powers over the
trust. The trust protector is not a trustee and never holds or administers trust property.
The exact role of the trust protector and the ability of the trust protector to direct a trustee
will vary depending on the specific terms of the trust and state statutes. 93
b. The Trust Protector is also being utilized more and more with domestic trusts to
supplement the investment and distribution committees of many directed trusts. 94 South
Dakota adopted the first trust protector statute in the United States in 1997, several states
now have them. 95 Advisors are drafting the trust protector functions into the trust
documents even in states without specific statutes; however, this may not be as strong as
drafting trust protector functions pursuant to a specific statute. 96
c. Some of the common powers given to a trust protector are as follows: 97
i. Modify or amend the trust instrument to achieve favorable tax status or respond
to changes in the Internal Revenue Code, state law, or the rulings and regulations
there under;
ii. Increase or decrease the interest of any beneficiaries to the trust;
iii. Modify the terms of any power of appointment granted by the trust. However, a
modification or amendment may not grant a beneficial interest to any individual
or class of individuals not specifically provided for under the trust instrument;
91 S.D. CODIFIED LAWS §§ 55-1B-1 – 55-1B-11.
92 Ted R. Ridlehuber, How Effective are Exculpatory Provisions in Wills and Trusts, Cannon Financial, Aug. 2002;
Roy M. Adams, Use of Exculpatory Provisons, 21st Century Estate Planning Practical Applications, Ed. 2005.
93 Alexander A. Bove Jr., Trust Protectors: Are They Friends of Fiduciaries? And Should Every Trust Have One?,
TRUSTS & ESTATES, Nov. 2005; Alexander A. Bove Jr., The Trust Protector: Trust Watchdog or Expensive Exotic
Pet?, 30 ESTATE PLANNING JOURNAL 390 (Aug. 2003).
94 Alexander A. Bove Jr., Trust Protectors: Are They Friends of Fiduciaries? And Should Every Trust Have One?,
TRUSTS & ESTATES, Nov. 2005; Alexander A. Bove Jr., The Trust Protector: Trust Watchdog or Expensive Exotic
Pet?, 30 ESTATE PLANNING JOURNAL 390 (Aug. 2003).
95 S.D. CODIFIED LAWS § 55-1B-6; ALASKA STAT. § 13.36.370; DEL. CODE ANN. tit. 12, § 3313; IDAHO CODE ANN.
§ 15-7-501; WYO. STAT. ANN. §§ 4-10-710 – 11.
96 Information based upon the authors’ previous experience and informal discussions with advisors.
97 See supra note 93; S.D. CODIFIED LAWS § 55-1B-6.
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