The Drawback: Loss of Control

In each of these examples the idea is that the trust assets are outside of the trust beneficiary’s reach, which in turn puts the trust assets outside of the trust beneficiary’s creditors reach. Giving up control over the trust assets is the trade off for creating these types of trusts. This can be a great loss in the event that the trustee opts not to make distributions as the trust creator would have liked.

There are a number of ways to deal with this loss of control issue, such as using co-trustees, independent trustees, and/or trust protectors.

A co-trustee is one individual or institution that shares the power as trustee with a second (or more) individual or institution. The idea is that, as spelled out in the trust and/or in state law, one co-trustee is not authorized to act without the consent of the other co-trustee or co-trustees.

The independent trustee is a person or institution spelled out in the trust document that is given certain limited powers or functions. For example, the independent trustee’s powers may be limited to vetoing any distributions proposed by the regular trustee.

The trust protector has an even more limited power or function in that their only role is to fire and hire trustees should they so choose. In this case the trust protector can fire a trustee prior to the trustee making distributions to a trust beneficiary who has creditor issues.

In many cases naming family members to serve as the co-trustee, independent trustee, and/or the trust protector helps ensure that the trust creator’s wishes will be carried out. Of course, naming these individuals creates other problems, such as what happens when the named party cannot or will not serve as the person who created the trust intended?

In these cases trusts generally provide that the trust beneficiaries can name subsequent parties (other than themselves) or that the named party has to designate a successor upon taking over the duties outlined in the trust.

If this isn’t complicated enough, a number of tax factors that may preclude certain individuals from serving in these capacities or having the power to name or replace these individuals. The trust is a very flexible and effective asset protection vehicle and, in most cases, these complexities associated with the trust are manageable.

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