Statutory Basis for Trust Protectors

The trust protector’s role generally arises under a jurisdiction’s directed trust statute. While many states have enacted specific statutes authorizing directed trusts – and several clearly defining the role of the trust protector by protector-specific statutes, many other states authorize trust protectors through enactment of the Uniform Trust Code.

Although Section 808 of the Uniform Trust Code doesn’t specifically reference trust protectors, the comments attending Section 808 make it clear that it indeed contemplates both trust protectors and trust advisors. Furthermore, the comments under Section 808 distinguish between trust “advisors”, which are often given “trustee-like” powers – which is consistent with the body of domestic case law – and trust “protector”, which originate from offshore practice and usually contemplate broader trust powers. Although we usually prefer the term trust protector, the distinction drawn from the comments to Section 808 of the UTC, as well as our analysis of relevant domestic directed trust statutes, helped inspire the Bespoke Framework for organizing trust protector powers.

Salient portions of Section 808 of the Uniform Trust Code are subjections (b) through (d), reproduced verbatim below from the final 2014 draft UTC. It has been enacted almost verbatim in every jurisdiction that has enacted the UTC.

Click here for a list of the jurisdictions that have enacted UTC Section 808 (with citations).

Section 808. Powers to Direct

(b) If the terms of a trust confer upon a person other than the settlor of a revocable trust power to direct certain actions of the trustee, the trustee shall act in accordance with an exercise of the power unless the attempted exercise is manifestly contrary to the terms of the trust or the trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty that the person holding the power owes to the beneficiaries of the trust.

(c) The terms of a trust may confer upon a trustee or other person a power to direct the modification or termination of the trust.

(d) A person, other than a beneficiary, who holds a power to direct is presumptively a fiduciary who, as such, is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries. The holder of a power to direct is liable for any loss that results from breach of a fiduciary duty.

*** Excerpted comment to Section 808 ***

Subsections (b)-(d) ratify the use of trust protectors and advisers. Subsections (b) and (d) are based in part on Restatement (Second) of Trusts § 185 (1959). Subsection (c) is similar to Restatement (Third) of Trusts § 64(2) (Tentative Draft No. 3, approved 2001). “Advisers” have long been used for certain trustee functions, such as the power to direct investments or manage a closely-held business. “Trust protector,” a term largely associated with offshore trust practice, is more recent and usually connotes the grant of greater powers, sometimes including the power to amend or terminate the trust. Subsection (c) ratifies the recent trend to grant third persons such broader powers.

It is also important to point out that according to Section 105 of the UTC (Titled “DEFAULT AND MANDATORY RULES”), the provisions of Section 808 are not mandatory rules. This means that unless the jurisdiction expressly modified Section 105, the presumption that the protector is a fiduciary may be overridden by the settlor in the trust instrument.