Trust Protectors

Stewart E. Sterk (Professor, Cardozo Law School) has recently released his article entitled Trust Protectors, Agency Costs, and Fiduciary Duty, 27 Cardozo L. Rev. 2761 (2006).
   

Here is his conclusion:
   

The relationship between the trust’s settlor and a trust protector is founded primarily on trust; the settlor trusts the protector to act as a faithful agent. In this respect, the relationship resembles that between fourteenth century landowners and their feoffees–precursors to the modern trustee who agreed to do the bidding of their principals by holding, and transferring, legal title in accordance with instructions given to them by those principals. Initially, the feoffee’s obligations were entirely moral; his duties were not enforceable at all. But the history of the early trust suggests that the relationship between the protector and the settlor, like the relationship between landowner and feoffee, will not long escape the scrutiny of the legal system; trust alone has proven inadequate to ensure that trustees act as faithful agents. Fiduciary duties have emerged to play a significant, albeit supplementary, role.
   

Fiduciary duties are likely to play a similar role in disciplining trust protectors. But protectors are not simply trustees by another name. The settlor who names a protector chooses to forego more traditional arrangements for shared responsibility for trust decisions, presumably out of a belief that the protector model adds value that traditional arrangements cannot capture. That added value is most likely to come in two forms: reduced agency costs in monitoring trustee behavior, and increased ability to adapt the trust to changed circumstances. But the agency costs associated with policing the protector threaten to dissipate this added value. If the protector is to survive as a trust institution, it will do so because the fiduciary duty regime that surrounds protectors minimizes those agency costs while maintaining the advantages associated with protectors.
   

At this point in the development of the trust protector, any attempt to describe a fiduciary duty regime that minimizes agency costs is necessarily tentative and incomplete. My objective here has been to provide a framework for developing that regime.