Trust Protectors (Trust Advocates)

Transcription

1 PRESENTED AT 17 th Annual Estate Planning, Guardianship and Elder Law Conference August 6 7, 2015 Galveston, Texas Trust Protectors (Trust Advocates) Paper by Renée C. Lovelace, CELA* Panel Presentation by Glenn M. Karisch Renée C. Lovelace, CELA* *Certified as an Elder Law Attorney by the National Elder Law Foundation as recognized by the State Bar of Texas Panel contact information: Glenn M. Karisch The Karisch Law Firm, PLLC 301 Congress Avenue, Suite 1910 Austin, Texas (512) Karisch@texasprobate.com Renée C. Lovelace The Lovelace Law Firm, P.C. P.O. Box Austin, Texas (512) RCLovelace@aol.com The University of Texas School of Law Continuing Legal Education utcle.org

2 Table of Contents Trust Protectors (Trust Advocates) By Renée C. Lovelace What We Want a Trust Protector to Be and Not to Be 1 A. Trust Protector (Trust Advocate) Levels of Intensity 2 B New Trustee World Paradigms. 2 C. What We Want a Trust Protector to Be and Do and Why. (1) Protect the Grantor s Goals for the Trust; Be an Advocate (2) Exercise Basic Powers and Maybe More (3) Monitor Trustee Actions and Make Changes If Necessary (a) Trust Investments (b) Trust Distributions (c) Beneficiary Information (d) Trustee Fees (e) Tax, Public Benefits, and Other Law Changes (4) Do Just the Right Thing at Just the Right Time (5) Be an Advocate, Guide, Monitor, Best Friend, and Protector D. Wants, Needs, Hopes, Expectations, and Trade-Offs.. 5 E. What We Do Not Need a Trust Protector to Be. 6 F. Making Cost/Benefit Trade-Offs.. (1) Size of the Trust (2) Skills and Interests of Parties Available to Serve (3) Costs and Benefits (4) Goals and Achievability (5) Clarity (6) Taking the Time to Design a Plan G. What We Do Not Want a Trust Protector to Be.. (1) Expensive (2) Difficult (3) Reluctant (4) Inattentive (5) Stressed Out by the Job (6) Liable (or Do We?) 2 6 8

3 H. To Be or Not to Be a Fiduciary 9 I. Taking a Liability Bath Spinning Off Risk to the Beneficiary J. Sample Language: Trustee Appointer Indemnification and Compensation 10 K. Sample Language (Karisch Sample Terms). 11 Part Two What a Trust Protector Seems to Be and Not to Be 11 A. Texas Trust Code Sec Powers to Direct Statute Pre- 9/1/ B Sec Changes Now Refers Solely to Charitable Trusts.. 12 C. New (2015) Section Directed Trusts and Advisors. 13 D. What Did Not Pass.. (1) New Directed Trusts Statute (Did Not Pass) (2) Sec Selected Definitions (3) Sec Investment Trust Advisor (4) Sec Distribution Trust Advisor (5) Sec Trust Protector (6) Sec Excluded Fiduciary (7) Sec Duty and Liability of Directing Party (8) Sec Duty and Liability of Excluded Fiduciary (9) Sec Consent to Jurisdiction (10) Sec Tax Savings Part Three Alternatives to Trust Protectors Exhibits Exhibit A Sample Language: Trustee Appointer Compensation and Indemnification. Exhibit B Sample Language (Karisch Sample Terms) Continuing Legal Education

4 Trust Protectors (Trust Advocates) 1 By Renée C. Lovelace The University of Texas School of Law Estate Planning, Guardianship, and Elder Law Seminar Galveston, Texas August 6 and 7, 2015 To be, or not to be, that is the question... Shakespeare (Hamlet) The term trust protector often refers to a party who is authorized to make changes to a trust, to direct a trustee to take actions, or to prohibit a trustee from taking actions. As with the terms care manager and special needs trust, however, there is not a consistent definition of the term. The focus of this article is on trust protectors as advocates. We will consider the powers that could be granted to trust protectors (or trust advocates) to protect the best interests of a vulnerable trust beneficiary, which of the powers may be the most critical in order to further the economic administration of a trust in the best interests of a beneficiary, and whether it is useful to use the term trust protector rather than other terms. When a trustee is provided with broad authority, the most critical power for an advocate to possess may be the authority to monitor trust administration and, if the individual believes it would be helpful to the beneficiary, to remove and replace trustees. That sounds simple enough, right? However, even if the sole power granted to a protector/advocate is the power to remove and replace trustees, there is the question of whether the protector should be liable if he or she acts improperly or does not act at all. Perhaps the most difficult (and potentially costly) question is whether (and when) the protector is a fiduciary. In pursuit of answers, this paper covers three topic areas, followed by several exhibits with sample language: What We Want a Trust Protector to Be and Not to Be Part Two What a Trust Protector Seems to Be and Not to Be Part Three Alternatives to Trust Protectors 1 The author gratefully acknowledges materials obtained from Austin attorney Glenn M. Karisch, some of which are referenced in this article. However, the author is solely responsible for the content and the positions in this article Renée C. Lovelace Trust Protectors (Trust Advocates) Page 1

5 *** What We Want a Trust Protector to Be and Not to Be *** A. Trust Protector (Trust Advocate) Levels of Intensity. This paper will address options for the role to be played by a trust protector or advocate, including the following: Expansive with a broad range of powers over the trustee; Modest holding powers that apply to specific objectives of the grantor; Limited but pivotal such as the right to remove and replace trustees; and NONE where a grantor determines that the trustee is the most trusted person available, and that layering in a trust protector may make the trustee s job more difficult, stressful, unpleasant, and/or expensive while contributing little or nothing to the beneficiary s best interests. B. New Trustee World Paradigms. We are awash with trustee options. We have trustees and successor trustees, of course, but we also have distribution trustees, investment trustees, administration trustees, custodial trustees, non-custodial trustees, trust advisors, and trust advisory committees, to name a few. We have investment advisors, financial managers, financial auditors, investment review committees, and directed investment roles. We have trustee appointers, trust protectors, trust advocates, etc. A trust may be drafted so that many of the powers and duties that could be (and, historically, usually have been) vested in one trustee are, instead, granted or assigned to multiple parties. These various parties will thus generally: Displace and replace trustee duties, or Duplicate trustee duties The division, duplication, direction, and coordination of these multiple roles is not cost-neutral. Each prospective solution to a trust drafting or administration problem, and each layer of roles that monitor other roles, comes with the potential for new costs and problems. C. What We Want a Trust Protector to Be and to Do and Why. Grantors who are planning for the best interests of an individual with disabilities, or for a beneficiary who is (or may become) vulnerable, will generally want trust resources to last as long as possible while providing for some or all of the needs and best interests of the trust beneficiary. Often, the Page 2 Trust Protectors (Trust Advocates) 2015 Renée C. Lovelace