Trust Protector For A Living Trust

Jon Alper Estate Planning

I read a living trust agreement which attempted to use a “trust protector” in addition to a trustee for reasons including asset protection. Trust protectors are common in offshore trust planning designed primarily for asset protection. Trust protectors are less common in living trusts designed usually for estate planning and probate avoidance. This particular trust agreement included a trust protector whose stated powers included transfer of assets owned by the living trust to any other trust created for the benefit of the living trust beneficiaries regardless of who created the other trust. For example, if the trustmaker’s parents or grandparents had themselves created an irrevocable or testamentary trust for the benefit of the settlor of the living trust, which other trust included asset protection provisions such as a spendthrift clause, the trust protector had the power to transfer all living trust assets to the other asset protection trust.

Presumably, the maker of the living trust would argue that there was no fraudulent transfer  because the transfer was done by the trust protector without the consent or participation of the trustmaker.

I don’t know of any case which determined whether a conveyance by a trust protector of a living trust could be a fraudulent conveyance. In my opinion, this plan would not survive a creditor attack on the conveyance. The principal reason is that the office of trust protector and the appointment of the protector was made by the maker of the living trust for his own benefit. The trust protector is in a sense an agent of the trustmaker, and the actions of the trust protector would be deemed to be acts of the trustmaker

. The plan might have a better chance if the trust protector’s conveyance to another trust was adverse to the interest of the trustmaker. However, most people would not have in a living trust a trust protector who had the ability to take actions with respect to the trust and trust property which were not in the interest of the trustmaker . In any event, the use of a trust protector in a living trust is a creative tool some asset protection to give a living trust which otherwise has no asset protection benefits.

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Alper Law is a Florida law firm focusing on asset protection for businesses and individuals.