structuring trust protector provisions: powers &...
TRANSCRIPT
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no
longer permitted.
Structuring Trust Protector Provisions:
Powers & Duties, Trustee Oversight,
Tax and Fiduciary Risks Avoiding Unintentional Fiduciary Classification, Navigating State Differences
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, SEPTEMBER 27, 2017
Presenting a live 90-minute webinar with interactive Q&A
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
Tips for Optimal Quality
Sound Quality
If you are listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet connection.
If the sound quality is not satisfactory, you may listen via the phone: dial
1-866-570-7602 and enter your PIN when prompted. Otherwise, please
send us a chat or e-mail [email protected] immediately so we can address the
problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
NOTE: If you are seeking CPE credit, you must listen via your computer — phone
listening is no longer permitted.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
FOR LIVE EVENT ONLY
Continuing Education Credits
In order for us to process your continuing education credit, you must confirm your
participation in this webinar by completing and submitting the Attendance
Affirmation/Evaluation after the webinar.
A link to the Attendance Affirmation/Evaluation will be in the thank you email that you
will receive immediately following the program.
For CPE credits, attendees must participate until the end of the Q&A session and
respond to five prompts during the program plus a single verification code. In addition,
you must confirm your participation by completing and submitting an Attendance
Affirmation/Evaluation after the webinar and include the final verification code on the
Affirmation of Attendance portion of the form.
For additional information about continuing education, call us at 1-800-926-7926 ext.
35.
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the ^ symbol next to “Conference Materials” in the middle of the left-
hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
FOR LIVE EVENT ONLY
Your Presenters
Alexander A. Bove, Jr.
Bove & Langa
Direct: 617.720.6040
Susan Merritt
The Northern Trust Company
Direct: 303.335.1401
William "Bill" Kalish
Johnson Pope
Direct: 813.501.3956
Elizabeth Meck
The Northern Trust Company
Direct: 303.335.1412
Structuring Trust Protector Provisions: Powers & Duties, Trustee Oversight, Tax and Fiduciary Risks
Outline
• Introduction
• 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
Introduction
NTAC:4UC-11 7
NTAC:4UC-11 8
NTAC:4UC-11 9
NTAC:4UC-11 10
NTAC:4UC-11 11
NTAC:4UC-11 12
Trust Protectors Across the United States
NTAC:4UC-11 13
‒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.
What is a Protector in the U.S.?
NTAC:4UC-11 14
‒ 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.
What is a Protector in the U.S.?
NTAC:4UC-11 15
Trust Protector Powers:
- Powers Related to the Trustee - Powers Unrelated to the Trustee
NTAC:4UC-11 16
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
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
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
•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.
Trust Protector Powers
NTAC:4UC-11 20
Source of the Trust Protector Powers
NTAC:4UC-11 22
•Some trust protector statutes specify the powers.
•For example, Nevada Statutes provides for the powers of a Trust Protector
NRS 163.555:
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.
Source of the specific powers
NTAC:4UC-11 23
• Some statutes do not provide specific powers – Florida statute
‒ F.S. 736.0808 – “Powers to Direct”
‒ Relevant case law, Minassian v. Rachins, So.3d, 2014
WL 6775269 (Fla. 4th DCA December 3, 2014)
Florida appellate court sanctioned the use of trust protectors
in a Florida trust proceeding
Source of the specific powers
NTAC:4UC-11 24
•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.
Distinction Between a Trust “Adviser” and a Trust “Protector”
NTAC:4UC-11 25
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
‒ 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
Choosing a Trust Protector
NTAC:4UC-11 27
Is the Trust Protector a Fiduciary?
NTAC:4UC-11 28
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 1008.
‒Alaska provides that a trust protector is not a fiduciary, unless
otherwise provided by the trust instrument, Alaska Stat. Ann.
§13.36.370
‒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
Is the Trust Protector a Fiduciary?
NTAC:4UC-11 29
NTAC:4UC-11 30
NTAC:4UC-11 31
NTAC:4UC-11 32
NTAC:4UC-11 33
NTAC:4UC-11 34
NTAC:4UC-11 35
NTAC:4UC-11 36
NTAC:4UC-11 37
NTAC:4UC-11 38
NTAC:4UC-11 39
NTAC:4UC-11 40
NTAC:4UC-11 41
NTAC:4UC-11 42
NTAC:4UC-11 43
NTAC:4UC-11 44
NTAC:4UC-11 45
NTAC:4UC-11 46
Additional Discussion Points
NTAC:4UC-11 48
NTAC:4UC-11 49
NTAC:4UC-11 50
NTAC:4UC-11 51
NTAC:4UC-11 52
NTAC:4UC-11 53
NTAC:4UC-11 54
NTAC:4UC-11 55
‒ 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.
Tax Considerations and Trust Protectors
NTAC:4UC-11 56
NTAC:4UC-11 57
NTAC:4UC-11 58
NTAC:4UC-11 59
NTAC:4UC-11 60
Additional Sources
Suzanne Shier & Tami Conetta, Trust Protectors: When and How Should They Be Used?, Insights on Wealth Planning, May 2016, available at: https://www.northerntrust.com/documents/commentary/wealthplanning-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, 2016.
NTAC:4UC-11 61
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