¶ 1101
Overview
Scope of the chapter. A trust protector is a person, other than a trustee, to whom the terms of a trust give one or more powers over the trust. The typical protector can remove a trustee and appoint a successor. Many can do far more: change the governing law and place of administration, amend administrative and tax provisions, add or remove beneficiaries within a defined class, veto distributions, or terminate the trust. Part II of this book examined the directed trust, in which a person who is not a trustee directs investment or distribution decisions and the trustee carries them out. See supra chs. 6–10. Part III examines the protector, whose office overlaps with that of the trust director but has a separate history and is governed, in most jurisdictions, by a separate body of statute. This chapter traces where the protector came from and how the law came to recognize it. Chapter 12 examines the powers a protector may hold, chapter 13 the duties that attach to them, chapter 14 the succession, removal and deadlock of protectors, and chapter 15 the protector in the international trust jurisdictions. See infra chs. 12–15.
What the question of recognition decides. A settlor may give a power over a trust to anyone. Whether the law will give effect to the power, and on what terms, is a separate question. It was an open one in most American jurisdictions until well after protectors had become common in practice. Three issues turn on recognition. The first is validity: whether a power held by a non-trustee to amend the instrument or to change a beneficial interest is a power the settlor could lawfully confer, or an impermissible delegation of the settlor's testamentary or dispositive authority. The second is status: whether the protector holds the power as a fiduciary, owing duties to the beneficiaries, or as a nonfiduciary, free to exercise it for any reason the instrument permits. The third is the effect on the trustee: whether a trustee who carries out a protector's decision is protected from liability, and whether the trustee must police the protector. Each of these issues was first settled by statute in the offshore jurisdictions, then by statute in a handful of American states, then in general terms by the Uniform Trust Code, and most recently, for powers that fall within it, by the Uniform Directed Trust Act. The courts have contributed less than the legislatures, but the few reported decisions show how the questions arise in litigation.
The plan of the chapter. The chapter begins with the offshore statutes that first gave the office a statutory form (¶ 1110), then follows the protector into American trust practice and the state statutes that recognized it (¶ 1120). It examines the treatment of protectors in the Uniform Trust Code (¶ 1130) and in the Uniform Directed Trust Act (¶ 1140), and compares the state protector statutes on definition, default status, menu of powers, jurisdiction and the protection of the trustee (¶ 1150). It then examines the reported decisions that have tested the protector's office (¶ 1160), sorts out the vocabulary of protector, adviser, director, committee and enforcer (¶ 1170), considers where the protector fits in the design of a modern trust (¶ 1180), and closes with a checklist for drafting the clause that creates the office (¶ 1190).
Why the history matters to the drafter. The protector is a creature of drafting. No statute requires a trust to have one, and no statute supplies one by default except in narrow cases such as the noncharitable purpose trust. See infra ¶ 1170.04. The drafter who includes a protector therefore chooses the office's powers, its fiduciary character and its relationship to the trustee, subject to whatever the governing law fixes. The governing law fixes different things in different places. A protector clause written for a Belize trust, where the protector owes a fiduciary duty unless the terms provide otherwise, will carry a different default meaning if the trust later migrates to South Dakota, where the protector is not a fiduciary unless the instrument says so, or to Arizona, where the protector is not a fiduciary and the exercise of its power is treated as the exercise of a special power of appointment. See infra ¶ 1150.03. The drafter who knows how each statute came to read as it does is better placed to write a clause that states the settlor's intention in terms that survive a change of governing law. See infra ch. 20 (trust migration).