A protector is a person who is given administrative or dispositive powers under the terms of a trust instrument, not exclusively for his own benefit. The main difference between a protector and a trustee is that a trustee holds the assets of a trust while a protector does not. In some trust instruments and relevant statutes, a protector can also be named advisor, appointer, enforcer, guardian, nominator, managing trustee or managing committee. While protectors have existed for a long time, their popularity has only been increasing during the last 25 years.
Legal provisions concerning protectors
The following jurisdictions have statutory provisions relating to protectors: Anguilla, Antigua, Barbados, The Bahamas, Belize, The British Virgin Islands, Brunei, Cayman, The Cook Islands, Curacao, Dubai, Guernsey, Jersey, Labuan, Malta, The Marshall Islands, Mauritius, Montserrat, Nevis, St Kitts & Nevis, San Marino, St Vincent & The Grenadines, Seychelles and Turks & Caicos. It should be noted that England, Wales, Bermuda, Gibraltar, the Isle of Man and other jurisdictions do not have statutory provisions concerning protectors.
In most cases, the laws relating to protectors do not contain a definition of the concept protector. Instead, the laws simply state that a protector may be appointed under the terms of a trust and list certain powers, duties and rights or restrictions, which may be attached to the appointment.
The role of protectors
Protectors are mainly used when the settlor does not know the proposed trustee and thinks that it would not be a good idea to reserve powers to himself. The settlor may consider that reserving powers to himself is a bad idea because of several factors such as tax planning, confidentiality, asset protection and planning for a situation when the settlor is dead or becomes incapacitated. Another reason why the settlor could decide to control the trust through a protector is in the case when the settlor has a lack of confidence in the proposed trustee and is unwilling to reserve powers to himself.
Appointment of protectors
Subject to the terms of the trust instrument and to any relevant laws, the following persons/entities may be appointed as protectors: (1) a beneficiary, (2) any natural person, (3) members of partnerships and unincorporated associations, (4) a corporation or other entity having legal personality under the law of the settlement, (5) a trustee (in theory), and (6) a settlor.
Some laws contain requirements concerning the appointment of a protector. For example, according to the laws of Mauritius, a protector must be an individual “of full age and sound mind”. Another example is the law of St Kitts & Nevis. It states that protectors of domestic trusts are required to be professional persons with no connection to the trustee.
Watchdogs and appointers
Watchdogs are an instrument by which the protector may be made subject to oversight within the functioning of a trust. Watchdogs review the administration of the trust (probably in consultation with the beneficiaries, trustee, and the settlor) and decide whether or not to remove or appoint a protector.
In other words, an appointer is a person, other than the settlor or the trustee, who has the power to appoint (and perhaps also to remove) a protector. With respect to that power, the appointer can be considered a protector.
Appointment by the court
In cases when a protector has fiduciary powers and there is a vacancy which cannot be filled by the machinery created by the trust instrument, a protector may be appointed by the court. The court will appoint the protector in the exercise of its equitable jurisdiction to administer a trust. At present, there are only few laws that explicitly empower the court to appoint or remove protectors.
Protectors have an important role in the management of a trust. The downside of protectors is that they may also incur costs and hinder the smooth administration of a trust. That is why opting for a trust protector requires prudence and a sound knowledge of the client’s needs.