A trust protector is vital for family businesses to safeguard the trust and beneficiary from issues or circumstances that could lead to problems down the road. To illustrate this point further, here’s an anecdotal story of a family business matter where the role of a trust protector proved to be particularly important.
(Billy) “Hi, Loyd and Doc! Good to see you again” Billy welcomed with his big classic smile, who is the son and successor to a recently deceased long-standing client. “It has been a while.” he chided with another big grin.
(Loyd, the narrator)“Good to see you as well Billy,” I responded. “Hi, Jane! Terrific to see you too.”
(Jane) Hi Loyd; you’re looking good as usual,” she responded with a hug. She then turned and reached out to shake Dr. Merlot’s hand confirming a less connected relationship. “Dr. Merlot! Welcome, I trust you are doing well.” In lieu of waiting for an answer, she quickly turned back for an introduction. “Loyd, this is John. I don’t think you have met him. We’ve been seeing each other for almost a year.”
(Loyd, the narrator) “No, I have not had the pleasure. Nice to meet you, John” I stated as I offered a handshake. “You are hanging out with a pretty feisty lady here,” I continued in fun. “I hope her pace is not wearing you down.”
(John) “Pleasure to meet you, Mr. Rawls,” responded the semi-handsome, very fit and overdress hunk who was not less than 10 years younger than his equally overdressed high-end catch. “Pleasure to meet you as well, Doc,” he offered with a handshake. “Pardon me for the informality. I’ve never heard anyone refer to you by any other name.”
(Dr. Merlot) “That’s perfectly fine,” responded Doc with his typically skeptical smile with which thankfully John had no experience. “How are the kids?” inquired Doc.
(Jane)“Oh yes,” responded Jane to both of us. “The girls were home recently for the weekend and doing well. I am heading out to Aspen next week hopefully to execute a contract on a new home and they will join me and Johnny when school shuts down for Spring break.”
(Loyd, the narrator) Finding my seat at the table next to Doc, to Billy’s right and across from Jane, I relaxed back in my chair and offered inquisitively, “I see from the statements that the dealerships are doing well. There have been no key manager issues. There are no hang-ups with your father’s estate. What’s going on?”
Jane thought I was speaking to her and her mouth began to slowly open to offer more details regarding her bizarre lifestyle when her anxious brother cut her off mid-word.
(Billy)“The fact of the matter Loyd, is Jane has put me, her trustee, in what I consider to be a tough spot and I need help. Jane has asked me to make a principle distribution from her trust for her to buy the home in Aspen she just referred to. The family property is apparently too far out of town for her and John. As I understand, you and more specifically Dr. Merlot is supposed to approve principle distributions? As a generation skipping trust, I don’t want to placate my sister and down the road get sued by my nieces.”
Visibly perturbed that Billy had cut her off, Jane seized the lead…
(Jane): “Oh, for heaven’s sake Billy. I don’t know why you are complicating this. As you recall, I was furious that dad restricted my access and management of my trust. I am not dumb; I can manage my own affairs. And Johnny has read my trust and explained that it is your responsibility to maintain my lifestyle. As you are aware, Johnny and I have been spending significant time in Aspen and our family home is outdated and way up the hill from the village. I would like to have my own place. And I don’t understand the role of the trust proctor or why Dr. Merlot is named in my trust; he barely knows me. He has not spent 15 minutes with me since my divorce from Bobby who apparently was one of his wine buddies.”
(Loyd, the narrator) “Trust protector, Jane,” I corrected. “We discussed this, the shareholder’s agreement and the qualified heir stipulations last year prior to your dad’s death. This discussion was pertaining to your divorce, so it would be reasonable for you not to recall the discussion. A trust protector is a relatively recent development of trust law which we are recommending to all our clients that allows for the appointment of an independent fiduciary exclusively to protect the trust, and of course the beneficiary, you, from issues, events or circumstances of concern to the grantor, your dad.”
(Dr. Merlot) “Such as buy a very expensive, high maintenance home with a fourth husband who predictably is fresh out of investment cash!” blurted Dr. Merlot sarcastically, fulfilling his well-known contempt for Jane’s lifestyle and disrespect for her father’s hard-earned money.
(Jane) “How rude!” proclaimed Jane. “I do not appreciate your tone.”
Feeling obligated to speak up, Johnny followed quickly looking directly over at Doc.
(Johnny) “Dr. Merlot we are not married, I have a successful business of my own and I take exception to your insinuation.”
Doc smiled and bowed his head to Johnny replying “My apology Johnny. You look the part and it is my bad for the wrong assumption.”
While Johnny was trying to figure out what Doc said, Jane looked towards me and Billy with disbelief.
(Jane) “Can you ask him to leave?” she pleaded. “Why in heaven’s name would dad make this wino a trustee!”
(Billy)“He’s not a trustee,” Billy responded. “He’s the trust protector. He is here because I told dad I would not be your trustee unless there was somebody I could defer to on tough decisions on issues such as your spending and marital issues. I am willing to be your brother and helper, but I will not be your daddy; who as best as I can recall, never told you, ‘no.’ Dad picked Dr. Merlot because, he’s honest, principled to a fault and doesn’t get bothered by what you say about him.”
(Loyd, the narrator) I followed quickly with, “And your dad initially asked me to serve as trust protector and I told him you and I were too close for me to provide the checks and balances he wanted.”
A loud silence fell over the group as Jane visibly struggled to accept what her brother and I had shared. She distracted herself for a moment toying with the brand-tag on her purse. After a couple of minutes, she looked back to her brother Billy, pursed her lips to acknowledge what he said and then scanned past me for lock-on with Doc. With a tight smile of acceptance, she shuffled her purse aside, leaned forward, put both hands on the table, and stared at Doc, purposefully conveying ‘Game on!’
Doc appeared to understand the posturing, returned the smile, leaned back in his chair, interlocking his fingers across his chest and offered an answer before she could ask her question.
(Dr. Merlot) “Not no, but hell no! We are not distributing money from your trust for you to buy an Aspen playhouse with your boyfriend, Johnny. Your dad asked me to do something that he was not willing to do and to the best of my ability, I am going to do it. You will never have to deal with me unless Billy says as co-trustee you are wanting to do something wild or crazy.”
As Jane absorbed what Doc said, it was apparent that the wheels were continuing to turn behind a stretched face still showing the stress of her last lift and tuck. Confirming her forethought to the meeting, she looked back at Billy and inquired…
(Jane) “So, trustee and dear brother, would you consider buying the home inside my trust? We have found the perfect place that is sure to grow in value.”
As Billy was about to enter a match that he was sure to lose, Doc interrupted…
(Dr. Merlot) “As your trust protector, your dad also asked me to approve any conversion of trust investments to personal use property. You could probably talk your brother into this one but not me. We are not buying the house in the trust either!” he proclaimed. “When you want to do the village crawl, you can spend some of your income distribution on a room at The Little Nell. Enjoy the golden eggs. We are not cooking your goose.”
Jane extended her open hands to Billy and me pleading, “Why you are being so unreasonable”
(Loyd, the narrator) “They are not being unreasonable!” I responded in disbelief. “Your dad appointed Doc.”
Dr. Merlot chimed in then, “Call me whatever you want, but don’t forget my title, trust protector. I suggest you drink a big glass of “give-it-up” because I take my job seriously and you are wasting our time. Let’s move on to other issues or break out the wine.”