Susan J. Merritt, Senior Vice President Senior Fiduciary Officer, Northern Trust, Newport Beach, Calif.

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Structuring Trust Protector Provisions: Powers & Duties, Trustee Oversight, Tax and Fiduciary Risks Avoiding Unintentional Fiduciary Classification, Navigating State Differences WEDNESDAY, SEPTEMBER 27, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Alexander A. Bove, Jr., Partner, Program Chair, Bove & Langa, Boston William Kalish, Partner, Johnson Pope Bokor Ruppel & Burns, Tampa, Fla. Susan J. Merritt, Senior Vice President Senior Fiduciary Officer, Northern Trust, Newport Beach, Calif. Elizabeth T. Meck, Vice President Personal Trust Administration, Northern Trust, Denver The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10. NOTE: If you are seeking CPE credit, you must listen via your computer phone listening is no longer permitted.

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5 Your Presenters Alexander A. Bove, Jr. Bove & Langa Direct: Susan Merritt The Northern Trust Company Direct: William "Bill" Kalish Johnson Pope Direct: Elizabeth Meck The Northern Trust Company Direct:

6 Structuring Trust Protector Provisions: Powers & Duties, Trustee Oversight, Tax and Fiduciary Risks Introduction Outline The use of trust protectors across the United States Powers granted to the trust protector Is a trust protector a fiduciary Discussion NTAC:4UC-11 6

7 Introduction NTAC:4UC-11 7

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13 Trust Protectors Across the United States NTAC:4UC-11 13

14 What is a Protector in the U.S.? Historic background adoption from offshore trust practices. May be defined in statutes. Uniform Trust Code 808 (b) (d) provisions may apply where states have adopted UTC. The following states have adopted the UTC: Alabama, Arizona, Arkansas, District of Columbia, Florida, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Vermont, Virginia, West Virginia, Wisconsin, and Wyoming. NTAC:4UC-11 14

15 What is a Protector in the U.S.? The following non-utc states permit the use of trust protectors: Alaska, Delaware, Georgia, Illinois, Indiana, Nevada, Rhode island, South Dakota, Texas, and Washington. Provisions permitting trust protectors can be incorporated into a trust instrument even without statutory authority. NTAC:4UC-11 15

16 Trust Protector Powers: - Powers Related to the Trustee - Powers Unrelated to the Trustee NTAC:4UC-11 16

17 Trust Protector Powers two categories: Powers related to the trustee Powers unrelated to the trustee Power to remove and replace an acting trustee Power to change the situs of the trust Power to appoint additional trustees Power to change the governing law of the trust Power to act as a tiebreaker when multiple trustees reach an impasse Power to terminate the trust under certain defined conditions Approval authority for discretionary distributions or the sale or management of specific assets Power to amend the trust for any valid purpose, such as to respond to changes in federal or state tax law Power to veto decisions made by the trustee Power to alter the beneficial interests in the trust, such as to add or remove beneficiaries NTAC:4UC-11 17

18 Trust Protector Powers Specific powers given to the TP generally include one or more of the following: To determine whether an event of duress has occurred. To approve accounts. To settle disputes between the TEE and BEN or among BENs. NTAC:4UC-11 18

19 Trust Protector Powers TP s powers typically can take on one of four forms: Direction (power to direct an action involving the administration of the trust or to make distributions from the trust). Veto Power. Power to consent to the TEE s action. Power to initiate change (such as the power to amend the trust or remove the TEE). NTAC:4UC-11 19

20 Trust Protector Powers Are the TP s powers superior to those of the Trustee? The Trustee s duty is to administer the trust according to its terms. The TP (depending on the extent of the TP s powers) may direct the Trustee otherwise. NTAC:4UC-11 20

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22 Source of the Trust Protector Powers NTAC:4UC-11 22

23 Source of the specific powers Some trust protector statutes specify the powers. For example, Nevada Statutes provides for the powers of a Trust Protector NRS : 1. A trust protector may exercise the powers provided to the trust protector in the instrument in the best interests of the trust. The powers exercised by a trust protector are at the sole discretion of the trust protector and are binding on all other persons. The powers granted to a trust protector may include, without limitation, the power to: a)modify or amend the instrument to achieve a more favorable tax status or to respond to changes in federal or state law. b)modify or amend the instrument to take advantage of changes in the rule against perpetuities, restraints on alienation or other state laws restricting the terms of a trust, the distribution of trust property or the administration of the trust. c)increase or decrease the interests of any beneficiary under the trust. d)modify the terms of any power of appointment granted by the trust. A modification or amendment may not grant a beneficial interest to a person which was not specifically provided for under the trust instrument. e)remove and appoint a trustee, trust adviser, investment committee member or distribution committee member. f)terminate the trust. g)direct or veto trust distributions. h)change the location or governing law of the trust. i)appoint a successor trust protector or trust adviser. j)interpret terms of the instrument at the request of the trustee. k)advise the trustee on matters concerning a beneficiary. l)review and approve a trustee s reports or accounting. NTAC:4UC-11 23

24 Source of the specific powers Some statutes do not provide specific powers Florida statute F.S Powers to Direct Relevant case law, Minassian v. Rachins, So.3d, 2014 WL (Fla. 4 th DCA December 3, 2014) Florida appellate court sanctioned the use of trust protectors in a Florida trust proceeding NTAC:4UC-11 24

25 Distinction Between a Trust Adviser and a Trust Protector Look to the instrument and state law. Power to control a trustee with regard to the exercise of certain powers. Trust Adviser as a third-party decision maker. NTAC:4UC-11 25

26 Additional Issues to Consider Careful consideration needs to be given Powers Role Individual to be appointed Appointment of Successor Protector Who can Remove a Protector? NTAC:4UC-11 26

27 Choosing a Trust Protector Too often this is an afterthought a very important decision that should be considered early in the drafting process. Consider drafting in the role with the ability to fill it at a later date if the grantor cannot identify someone currently The powers given to the Protector can have an impact on who should be considered. Power to modify trust - consider tax implications to grantor and to person being considered for Protector Power to add beneficiaries choose appropriate person to have this responsibility NTAC:4UC-11 27

28 Is the Trust Protector a Fiduciary? NTAC:4UC-11 28

29 Is the Trust Protector a Fiduciary? UTC establishes a presumption that a trust protector is a fiduciary, UTC 808 (d). Although this is a default rule which may be waived, the trust instrument may not relieve the trustee of liability for breach of trust committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries, UTC 105 and Alaska provides that a trust protector is not a fiduciary, unless otherwise provided by the trust instrument, Alaska Stat. Ann Delaware and Illinois both provide that that a trust protector is a fiduciary, unless otherwise provided in the trust instrument, 12 Del. C. 3313(a) and 760 ILCS 16.3,16.7 NTAC:4UC-11 29

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48 Additional Discussion Points NTAC:4UC-11 48

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56 Tax Considerations and Trust Protectors A TP can be given the authority to make certain tax elections (e.g., QTIP, S Corp qualification, etc.). Granting certain powers to a TP could lead to unanticipated tax consequences: Estate Tax: powers exercisable by the TP could cause inclusion of trust property in the TP s estate if the power could be considered a general power of appointment over the trust assets. Income Tax: certain powers such as adding a trust beneficiary, altering distributions or amending the trust terms could cause the trust to be considered a grantor trust as to the TP. Gift Tax/GST Tax: if the TP has power to amend withdrawal rights, such changes could cause the gifts to the trust not to qualify for the annual gift tax exclusion or could result in the loss of GST exempt status. NTAC:4UC-11 56

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61 Additional Sources Suzanne Shier & Tami Conetta, Trust Protectors: When and How Should They Be Used?, Insights on Wealth Planning, May 2016, available at: ning-insights/trust-protectors.pdf. David Diamond & Simon Beck, The Role of the Trust Protector: Should Every Trust Have One?, STEP Meeting, Miami, Florida, Oct. 18, NTAC:4UC-11 61

62 Disclosures LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. OTHER IMPORTANT INFORMATION: This presentation is for educational purposes only. The information is intended for illustrative purposes only and should not be relied upon as investment advice or a recommendation to buy or sell any security. Northern Trust and its affiliates may have positions in, and may effect transactions in, the markets, contracts and related investments described herein, which positions and transactions may be in addition to, or different from, those taken in connection with the investments described herein. Opinions expressed are current only as of the date appearing in this material and are subject to change without notice. NTAC:4UC-11 62