A trust protector is being utilized more and more with directed trusts to create a powerful tool that supplements the investment and distribution committees. South Dakota was the first state to adopt a trust protector statute in 1997, and not all states have one.

Some advisors draft trust protector functions into trusts domiciled in states without a trust protector statute. Not surprisingly, this is not as strong as drafting trust protector functions into a trust domiciled in a state, such as South Dakota, with a trust protector provision by statute.

Below are several of the most common powers provided to trust protectors by families to provide additional flexibility to their directed trust.

  1. Modify or amend the trust instrument to achieve favorable tax status or respond to changes in the Internal Revenue Code, state law, or the rulings and regulations there under;
  2. Increase or decrease the interest of any beneficiaries to the trust;
  3. Modify the terms of any power of appointment granted by the trust. However, a modification or amendment may not grant a beneficial interest to any individual or class of individuals not specifically provided for under the trust instrument;
  4. Remove and appoint a trustee, trust advisor, investment committee member, or distribution committee member;
  5. Terminate the trust;
  6. Veto or direct trust distributions;
  7. Change situs or governing law of the trust, or both;
  8. Appoint a successor trust protector;
  9. Interpret terms of the trust instrument at the request of the trustee;
  10. Advise the trustee on matters concerning a beneficiary; and
  11. Amend or modify the trust instrument to take advantage of laws governing restraints