When is a trust protector a fiduciary?
Key takeaway
A trust protector's fiduciary status depends on the trust instrument and applicable state law. Some instruments expressly assign fiduciary duties, while state law may determine the status when the instrument is silent. For business owners, real estate owners and private investors, the distinction shapes the protector's responsibilities and powers, which may include monitoring trustee actions or directing trust administration.
The trust instrument can define the role
A trust instrument can grant a protector powers over trust administration and specify responsibilities. Those powers can include monitoring trustee actions and beneficiary needs, or directing a trustee's actions for a special needs trust. A protector may or may not be a fiduciary depending on the instrument. Practitioners describe trust directors as almost always considered fiduciaries.
State law can determine fiduciary status
State law can determine whether a trust protector owes fiduciary duties, including when the instrument does not expressly designate the role. Tennessee law treats a non-beneficiary holding a power to direct as presumptively a fiduciary. That person must act in good faith and is liable for losses from a breach.
Wyoming powers and appointment
Wyoming law provides that a trust protector's powers come from the trust instrument or a judicial order. The protector may exercise those powers, or decline to exercise them, in the best interests of the trust. Wyoming law also provides that a trust advisor's or protector's authority does not lapse at the grantor's death or incapacity unless the instrument provides otherwise.
Accepting an appointment under a Wyoming-law trust submits the advisor or protector to Wyoming court jurisdiction, even if related agreements state otherwise. The jurisdictional condition applies to a trust advisor or protector who accepts the appointment under that trust.