What is a Trust Protector in North Carolina?
People are increasingly using cutting-edge techniques in the always-changing field of estate planning to protect their legacies. At Brady Cobin Law Group, PLLC, we understand that estate planning can be a complex process filled with decisions that have a lasting impact on your family. That’s why we’re here to help North Carolina residents make informed choices that protect their legacy.
One tool that can play an important role in trust administration is the trust protector. In this article, we’ll explore what a trust protector is, why having one can be beneficial, and how to determine if this option might be right for you.
What is a Trust Protector?
A trust protector is an individual or entity that is sometimes referred to as a “power holder” under North Carolina law. Their role is separate from that of the trustee, which creates a system of checks and balances.
Both the trust protector and the trustee are initially appointed by the grantor (the person who creates the trust). However, unlike a trustee, whose job is to manage and distribute the trust assets, a trust protector has a more supervisory role. The trust protector oversees the trustee and ensures that the trust is managed according to the grantor’s wishes.
The grantor can give the trust protector a range of powers, from removing and replacing trustees to modifying the trust’s provisions if circumstances change. This flexibility can be invaluable, particularly for long-term trusts or when the grantor is concerned about future changes in the law or family dynamics.
Why Have a Trust Protector?
There are several reasons why you might want to consider including a trust protector in your estate plan. Here are some of the key benefits:
Flexibility
Life is full of surprises, and a trust protector can make certain adjustments to the trust when unexpected changes arise. For example, if there are changes in tax laws or if a beneficiary’s circumstances change (like a new disability or sudden financial hardship), a trust protector can make modifications to ensure the trust still serves its intended purpose. This is extremely useful when you have a trust that will be in place multiple generations.
Accountability & Protection
A trust protector adds an extra layer of oversight to make sure the trustee is acting in the best interests of the beneficiaries. If a trustee isn’t following the grantor’s intentions, is making questionable decisions, or mismanaging or abusing assets, the trust protector can intervene. The trust protector ensures that everyone is acting pursuant to the grantor’s wishes for administering the trust.
This oversight is especially important when the beneficiaries are not able to monitor the trustee themselves, such as in the case of minor children or beneficiaries with disabilities.
Powers of a Trust Protector in North Carolina
The powers granted to a trust protector can be extremely broad or narrow in scope depending on the amount of flexibility the grantor wants to create in the trust. Here are some of the common powers a trust protector might have in North Carolina:
- Removing and Appointing Trustees: If a trustee is not acting in the best interests of the beneficiaries or becomes incapacitated, the trust protector can remove them and appoint a new trustee.
- Directing or Vetoing Trustee Actions: A trust protector might have the authority to direct specific actions of the trustee or veto decisions that they believe are not in line with the trust’s goals.
- Modifying the Trust: If there are changes in tax laws or unforeseen circumstances arise, the trust protector can modify the trust to ensure it continues to meet the grantor’s intentions.
- Resolving Disputes: If there are disputes between co-trustees or between a trustee and a beneficiary, the trust protector can serve as a neutral party to help resolve these conflicts.
- Changing Distributive Provisions: A trust protector might adjust the distribution of assets if the needs of the beneficiaries change, such as providing more support for a beneficiary with unexpected medical needs.
- Changing the Governing Law: If circumstances change—such as the grantor or beneficiaries moving to a different state—the trust protector can change the governing law of the trust to better suit the new situation.
- Approving or Vetoing Trustee Actions: Depending on the terms set by the grantor, the trust protector can have broad or specific authority to approve or disapprove trustee actions.
Choosing a Trust Protector
Choosing the right trust protector is a critical decision. Here are some things to consider when making your choice:
Who to Choose
A grantor can choose an individual, a group of people, or even a legal entity as the trust protector. Common choices include family members, close friends, professional advisors, or corporate fiduciaries. However, a trust beneficiary should not be selected for the trust protector role.
Each option has its own advantages and potential drawbacks.
- Family members may have a deep understanding of the grantor’s intentions but might also face conflicts of interest.
- Professional advisors or corporate fiduciaries offer objectivity and experience but may charge fees for their services.
For many clients, the Trust Protector is meant to provide flexibility to handle unanticipated situations should one arise. In these scenarios, we can provide for the Trust Protector to be appointed at a later date but provide the powers of the Trust Protector at the time the trust is drafted.
Consider Objectivity
It can often be beneficial to choose someone outside the family to avoid conflicts of interest. An impartial trust protector is more likely to make decisions that are fair and in line with the grantor’s wishes.
Complexity of the Trust
The more complex the trust, the more it may benefit from a professional trust protector who has the knowledge and experience to handle intricate situations.
Backup Trust Protector
It’s always a good idea to name a backup trust protector in case the original choice is unable or unwilling to serve. This ensures continuity in the administration of the trust.
Legal Considerations
In North Carolina, trust protectors are governed by Article 8A of N.C. Gen. Stat. Chapter 36C. The trust document should clearly define whether the trust protector is serving in a fiduciary or non-fiduciary capacity, as this affects their level of responsibility and liability.
A trust protector who serves in a fiduciary capacity must act in the best interests of the beneficiaries, similar to a trustee. However, if the trust document specifies that the trust protector is a non-fiduciary, they may have more limited obligations. It’s important to work with an experienced estate planning attorney to ensure that the trust document clearly outlines the powers and responsibilities of the trust protector.
Brady Cobin Law Group: Your Trusted Partner in Estate Planning
At Brady Cobin Law Group, PLLC, we take pride in helping families create comprehensive estate plans that stand the test of time. Whether you are considering adding a trust protector to your trust or simply want to explore your options, our firm is here to provide the guidance you need.
We understand North Carolina’s laws related to trusts and trust protectors, and we can help you determine the best course of action for your family. Reach out to us today at 919-782-3500 to schedule a consultation.