Structuring your investments into Africa Ben Lim, CEO, Intercontinental Trust Ltd Mauritius.
Structuring Trust Protector Provisions:...
Transcript of Structuring Trust Protector Provisions:...
Structuring Trust Protector Provisions: Protectors’
Powers & Duties, Trustee Oversight, Tax
and Fiduciary RisksAvoiding Unintentional Fiduciary Classification, Key Trust Provisions to Limit Disputes, Navigating State Differences
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
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. 1.
TUESDAY, NOVEMBER 12, 2019
Presenting a live 90-minute webinar with interactive Q&A
William Kalish, Partner, Johnson Pope Bokor Ruppel & Burns, Tampa, Fla.
Melissa Langa, Attorney, Bove & Langa, Boston
Elizabeth T. Meck, Vice President, Senior Trust Advisor, Northern Trust, Denver
Susan J. Merritt, Senior Vice President and Chief Fiduciary Officer, Wealth Management, Northern Trust,
Newport Beach, Calif.
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
1-877-447-0294 and enter your Conference ID and 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.
Viewing Quality
To maximize your screen, press the ‘Full Screen’ symbol located on the bottom
right of the slides. To exit full screen, press the Esc button.
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 additional information about continuing education, call us at 1-800-926-7926
ext. 2.
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 link to the PDF of the slides for today’s program, which is located
to the right of the slides, just above the Q&A box.
• The PDF will open a separate tab/window. Print the slides by clicking on the
printer icon.
FOR LIVE EVENT ONLY
Your Presenters
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
Melissa Langa
Bove & Langa
Direct: (617) 720-6040
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-116
Introduction
NTAC:4UC-117
NTAC:4UC-118
NTAC:4UC-119
NTAC:4UC-1110
NTAC:4UC-1111
NTAC:4UC-1112
Trust Protectors Across the United States
NTAC:4UC-1113
‒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-1114
‒ The following non-UTC states permit the use of trustprotectors:
• Alaska, Delaware, Georgia, Illinois, Indiana, Nevada, Rhode island, South Dakota, Texas, and Washington.
‒ Provisions permitting trust protectors can be incorporatedinto a trust instrument even without statutory authority.
What is a Protector in the U.S.?
NTAC:4UC-1115
Trust Protector Powers:
- Powers Related to the Trustee- Powers Unrelated to the Trustee
NTAC:4UC-1116
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 trusteePower to alter the beneficial interests in the trust, such as to add or remove beneficiaries
NTAC:4UC-1117
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-1118
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-1119
•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-1120
Source of the Trust Protector Powers
NTAC:4UC-1121
•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 thetrust. The powers exercised by a trust protector are at the sole discretion of the trust protector and are binding on all otherpersons. 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 federalor state law.b)Modify or amend the instrument to take advantage of changes in the rule against perpetuities, restraintson alienation or other state laws restricting the terms of a trust, the distribution of trust property or theadministration 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 maynot 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 committeemember.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-1122
• 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-1123
•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-1124
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-1125
‒ 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-1126
Is the Trust Protector a Fiduciary?
NTAC:4UC-1127
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-1128
NTAC:4UC-1129
NTAC:4UC-1130
NTAC:4UC-1131
NTAC:4UC-1132
NTAC:4UC-1133
NTAC:4UC-1134
NTAC:4UC-1135
NTAC:4UC-1136
NTAC:4UC-1137
NTAC:4UC-1138
NTAC:4UC-1139
NTAC:4UC-1140
NTAC:4UC-1141
NTAC:4UC-1142
NTAC:4UC-1143
NTAC:4UC-1144
NTAC:4UC-1145
Additional Discussion Points
NTAC:4UC-1146
NTAC:4UC-1147
NTAC:4UC-1148
NTAC:4UC-1149
NTAC:4UC-1150
NTAC:4UC-1151
NTAC:4UC-1152
NTAC:4UC-1153
‒ 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-1154
NTAC:4UC-1155
NTAC:4UC-1156
NTAC:4UC-1157
NTAC:4UC-1158
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-1159
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-1160