The issue of protectors is one that the Law Commission has touched on its Review of Trust Law in New Zealand. It may nonetheless give some protectors something to think about.Īs for remedies against protectors the situation is that formally there aren’t any, as their role is not strictly fiduciary. Whether a New Zealand court would reach the same decision, given that the protector in McLean Revocable Trust was found guilty in tort, rather than for breach of trust, is unclear. McLean Revocable Trust v Davis where the protector was ultimately found liable for losses to the trust due to his failure to adequately supervise the trustees. See for example the Missouri case Robert T. Although there is limited case law regarding protectors, the case law that exists confirms that there is danger to both settlors who act in reliance on a protector’s bona fides, and also a protector who can unknowingly take on a trustee’s fiduciary obligations. Whether or not protectors do will be determined on a case by case basis. However, the fundamental issue with protectors is that the parameters of responsibility and obligation are unclear.
The idea of a protector as a back-up to monitor the trustees may seem sound. The role of the protector can be to approve certain decisions during the settlor’s life and to get involved in the management of the trust on the death of the settlor/trustees. The idea behind the “protector trust model” is that independent trustees are generally no more than ciphers who rubber stamp at the settlor/trustee’s behest and as such offer no true independence. Whether this substitution has been effective or not cannot be conclusively determined until tested by the courts. Protectors have been used in New Zealand trusts as what could be viewed as a substitute for independent trustees. The role of protector has now flourished to some extent closer to home.
Of course the converse argument might have been that if you don’t trust the trustee, or you are not confident that the trustee is a safe and desirable trustee, maybe you just stop there. The protector’s job was to ensure the safe management of the trust and, conceptually, it is understandable why a protector might be required. The concept of the protector developed when settlors started to utilise offshore trustees to hold what might amount to significant wealth on trust. If the role is “all care no responsibility” (unlike that of a trustee, which is subject to certain unavoidable obligations and duties), what are the risks and what are the rewards? The significance of the question relates to what obligations the protector owes the beneficiaries or the appointing settlor.
The difficulty in clearly defining the role was noted by Smith J in Rawson Trust Co v Perlman where it was said: “the term protector is not a term of art and is not known as such to our law”.Īcademics have grappled with the question as to whether a protector is a fiduciary role. Protectors can also have specified obligations,uch as following the death of a settlor. These powers range from powers to veto trustee decisions, to powers to appoint trustees and beneficiaries. As a general principle a protector is a person who, although not usually a trustee, has been granted certain powers relating to the trust. There is no agreed definition of protector. Protectors, although perhaps not a common feature in discretionary trusts, pepper the trust landscape.
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