Article on the Fear of Fiduciary Duty as a Trust Protector

Alexander A. Bove, Jr. recently published an Article entitled, A Protector by Any Other Name . . ., 8 Est. Plan. & Community Prop. L.J., 389 (2016). Provided below is a summary of the Article:

The trust protector has rapidly become one of the most popular and valuable tools for estate planning attorneys today. The problem has been, and remains, that there are two opposing schools of thought in its use. One is that the protector may or may not be declared a fiduciary regardless of its powers. The other is that that position in almost all cases is so integral to the proper administration of the trust that with very limited exception the law should per se regard the protector as fiduciary. This discussion, which emphatically supports the latter position, focuses expressly on that issue, and was in large part motivated by and is offered in response to a plenary presentation on the subject at the 2015 Heckerling Institute on Estate Planning. That presentation essentially declared that the protector will or will not be a fiduciary depending upon the name given to the position under the terms of the trust, without regard to the impact of his powers on the beneficiaries or the purposes of the trust, and without regard to the intent of the settlor. This discussion points out the basic lack of support for such an approach and analyzes the protector’s important role in a trust, concluding that with one specific exception, the law has to regard the protector as a fiduciary. This discussion further considers the state laws concerning protectors, which generally reflect either a lack of understanding or a lack of concern about fiduciary law, and explains that the only real impact of such laws on the issue is made by those few states which provide that the protector is regarded as a fiduciary, regardless of a statement in the trust to the contrary.

There is little question that the trust protector is here to stay. Estate planners may not use them in every trust, but few would argue against their unique value to long-term and dynasty trusts, and many life insurance trusts, if not more. For this reason, it is extremely important that estate planning professionals must accept and assume the responsibility to effectuate clients’ objectives in a manner consistent with established principles of law and consistent with the best interests of trusts and beneficiaries, rather than in a manner designed to produce the least exposure to liability of parties who are appointed to implement the client’s plans.

The thrust of this discussion is to discourage the tendency on the part of practitioners from thinking that a party who holds fiduciary powers, or is in a fiduciary position and placed in that position of trust and confidence by the settlor, may be relieved of all fiduciary duty simply by stating in the trust that he is not a fiduciary. This “fear of fiduciary duty” has been blown way out of proportion. To be a fiduciary is not a curse, and if exposure to liability is the motivating concern for that fear, such exposure can be reduced to a minimum, as discussed later, but it cannot be drafted away completely. This is not to say that a protector may never act in a non-fiduciary capacity, as illustrated later in the discussion, but such cases are unique and contrary to the inherent nature of the trust protector’s role.