With some minor exceptions, the facts are the same in PLR 201525002& PLR 201525003. In these PLRs, the Grantor transferred funds to an irrevocable trust for the Grantor’s own benefit and the benefit of several charities. In each case, the trust was created in a state other than the state of residence of the Grantor. In addition to the Trustee, each trust had an Investment Advisor, a Distribution Advisor, a Charity Distribution Advisor and a Trust Protector, none of whom were trust beneficiaries, except that the Charity Distribution Advisor was the Grantor’s spouse who was a potential appointee.
The Distribution Advisor had the power to direct the Trustee as to whether to make Quarterly Distributions, Support Distributions and Special Contingent Distributions to the Grantor, and also had the power to direct the Trustee as to whether to make Quarterly Distributions to the charities.
The Grantor had a limited testamentary power to appoint the trust among her spouse and charities.
The Investment Advisor had the power to direct the Trustee as to trust investments. (more…)
There is much confusion about what a trust protector can and cannot do with respect to a trust for which the trust protector is serving. First and foremost, the trust protector’s powers provided by state statute are often limited to the powers authorized in the trust instrument, as reflected by the Court in Schwartz v. Wellin, 2014 WL 1572767 (D.S.C., April 17, 2014).
Keith Wellin created the Wellin Family 2009 Irrevocable Trust (“Trust”), a dynasty trust for the benefit of his three children and their respective lineal descendants, with his children and the South Dakota Trust Company as the Trustees. After creating this Trust, Milton sold his interest in the Friendship Partners LP (“FLP”) to the Trust, taking back a promissory note for $50 Million. Apparently in 2013, a dispute arose between Keith and his children, when his daughter, Cynthia, as manager of the LLC that was the general partner of the FLP, proposed to sell all of the assets of the FLP, liquidate the FLP, set aside $50 Million to pay the promissory note and distribute the remaining $95 Million to the three children.
In order to prevent such actions, Keith appointed Schwartz as the Trust Protector. The same day, Schwartz amended the Trust to give the trust protector “the power to represent the Trust with respect to any litigation brought by or against the Trust if any Trustee is a party to such litigation”, and “to prosecute or defend such litigation for the protection of trust assets” (“Litigation Provision”). Schwartz also immediately removed the corporate trustee, and the individual Trustees completed the sales and distributions as proposed. The individual Trustees believed their actions were justified to avoid a $40 Million tax liability that would be incurred when Keith turned off the Trust’s grantor trust status. (more…)
The Missouri Court of Appeals recently issued an opinion in Robert T. McLean Irrevocable Trust v. Ponder, a case involving the question of whether a Trust Protector could be held liable in not exercising the right to remove and replace the Trustees of a special needs Trust.
The Robert T. McLean Irrevocable Trust (the “Trust”) was created with settlement proceeds from Robert McLean’s (“Robert”) personal injury case. Ponder was appointed “Trust Protector” of the Trust with the right to remove the Trustee and appoint a successor Trustee. The Trust Protector was also given the right to appoint a successor Trust Protector and to resign as Trust Protector. The Trust also provided that the “Trust Protector’s authority was conferred in a fiduciary capacity” and that the Trust Protector was not liable for any actions taken “in good faith.” The Trust did not provide Ponder with any power or duty to supervise the Trustees or direct their activities.