Professional Protector Services

Individual Protectors vs Corporate Protectors

What is a protector?

A trust protector is often referred to as a “trust watchdog” or “trust supervisor”. I prefer the term “trustee supervisor” because a trust protector often exercises trustee oversight in order to prevent the trustee from making fraudulent or illegal actions that could be harmful to the trust beneficiaries.

A protector often has the power to remove a harmful trustee and appoint a replacement trustee or an additional trustee. Furthermore, trustees are often required to seek the written consent of the trust protector for the following trustee decisions:

*??????Making distribution or loans of trust fund assets;

*??????Adding, removing, or excluding trust beneficiaries;

*?????Amending the terms and provisions of the trust deed;

*??????Changing the governing law of the trust;

*??????Terminating the trust prior to the perpetuity date or such other duration date specified in the trust instrument.

As the role of the trust protector has evolved, over the past 40 years or so, it has often been the case that trust protectors have been given additional powers including the following:

*???????Approving trustee investment decisions;

*????Approving the appointment and removal of directors of underlying entities;

*??????Confirming the mental capacity of a connected person;

*??????Reviewing and approving trust accounts;

*??????Acting as a mediator on behalf of beneficiaries.

It is common that the trust settlor and/or the beneficiaries more “trust” (excuse the pun) the trust protector than they do the trustee and particularly where the protector already has a close relationship with the settlor and his family. So, there is often a temptation to give the protector so many powers that he/she effectively becomes the de-facto trustee. (I have also seen trusts where the trust instrument (trust deed) appeared to specify that the trustee couldn’t exercise even simple administrative powers without the consent of the protector, which makes the trust totally unwieldy!). ?

The evolution of the use of trust protectors

The office of trust protector first commenced being widely used back in the 1980s, with a growing locational divide between offshore trustees, often based on far-flung islands, and their trust clients. Settlors were mainly living in high-tax countries in Europe, North America, and South America (as Asian and African clients had yet to embrace trusts in the main). With non-offshore trusts, there would be an expectation that the trustee and its clients would meet frequently, but the offshore trust industry created a situation where trustee representatives and trust-connected persons would infrequently meet, if ever, and quite often never. ?(That situation persists to this day although we now have the luxury of meeting clients via video conference applications but still not in person).

?It is quite difficult to totally believe in a trustee representative, whom you have never met in person, and it is also a fact the offshore trust jurisdictions were not as well-regulated back then. Thus, instances of fraud and other white-collar crimes were commonplace. I also commenced my offshore trust business career, in that decade, and I recall how even legitimate service providers operated on the long-since abandoned “dual-criminality” rule. This “rule: specified meant that there was no crime committed if a trustee action was not illegitimate, in the offshore trust jurisdiction, even if the action created a crime in the Settlor’s home country, such as a tax crime. ?(Beneficiaries of those long-ago trusts are still facing the financial penalties of those tax transgressions, even now, despite being unwitting parties to the financial crime!).

Thus, in a situation of trustee mistrust, trust settlors turned to someone who can safeguard the trust assets, on behalf of the beneficiaries, and that someone was the trust protector. In those early years, the trust protector was usually a family friend or the family lawyer, whom the Settlor had known for many years. It was believed that a family connected protector would act in the interests of the Settlor’s family notwithstanding that said protector had very little knowledge of trust law and trust principles. In addition, a trust protector was a very cheap safeguard as most were not paid for their services other than being able to reclaim some expenses related to the trust protector office. (Although “free is not always good”, because an unpaid protector often proves to be disinterested in the office that he/she holds!).

This lack of knowledge and disinterest created many unfortunate trust events. Plus individual protectors often proved to be more inclined to help themselves than the trust beneficiaries. My only experience of trust litigation resulted from a situation where a trust protector colluded with one trust beneficiary to defraud the two other beneficiaries for a nice share of the proceeds! I have also been requested, by trust protectors, to make changes to trusts, or to trust underlying entities, that could only obviously benefit the trust protector and not the beneficiaries. (I have always refused any such request, as a trustee director, even if threatened with trustee removal by the trust protector). In yet another case, I was asked to make a $4M trustee loan to a protector who seemed ignorant of the trust law principle that only trust beneficiaries can benefit from an interest-free loan! Another problem, which I often encountered, was individual protectors acting in the interests of the trust settlor (their friend) rather than in the interests of trust beneficiaries, which was their actual duty.

The use of individual professional protectors

I don’t have space to detail all the unfortunate incidents, which I have experienced with individual protectors, during my lengthy trust career. Many thousands of other professionals are acting as trustee directors, in a growing multitude of trust jurisdictions, and I expect that most will have similar stories. Furthermore, protectors are also now used to safeguard beneficiary interests with private foundations too. Although the potential for protector abuse of authority is probably even higher, with a foundation, because a foundation usually does not have the same kind of connected party regulating authority as a trust deed delivers! It is also the case that there is considerably less jurisprudence, with private foundations, mainly because they have not existed as long as trusts. Parties are also less inclined to engage in litigation, in the event of a dispute, between a foundation beneficiary and a foundation council or board. (It is a sad fact that foundation beneficiaries do not have the same level of “protected rights” as a trust beneficiary enjoys!).

These types of events, and many others, eventually gave rise to a realization that Settlors should consider employing professional protectors, rather than their friends and professional contacts, for the high-value trusts. Because such trusts are often complex, with multiple underlying entities, different kinds of investments, and even different classes of beneficiaries. Although a reluctance to pay protector fees means that the vast majority of trusts and private foundations still have non-professional protectors. The Settlors and Founders fervently hope that all will go well, whence they “shuffle off this mortal coil”, even though they probably know that there are no guarantees that such will happen. “Penny wise and pound foolish” is an apt saying, to describe this circumstance, although Settlors & Founders will never know if their families suffered because a professional protector was not utilized!

Not all potential problems are solved by utilizing a professional protector either, as the legitimate professionals tend to be “long in the tooth” because they gained their trust experience by acting as directors of professional trustees over many years. (Sadly, there are a number of persons now offering professional protector services who have little (if any) trust experience!). The legitimate individual protectors have usually reached retirement age and that creates the issue that such aged persons are prone to mental incapacity, or death, long before the trust or private foundation has fulfilled its purpose. ?(As I can testify, from personal experience, dealing with an incompetent protector is an exercise in frustration and especially if that protector withholds consent to necessary trustee decisions). In addition, the Trustee will have no power to remove an incompetent protector other than by application to the courts, which is a long-winded and expensive process. Some trust deeds permit the Settlor to remove the protector if the protector will not voluntarily resign, but that authority becomes redundant if the Settlor has already died!

One other issue is that the individual protector often acts alone, and with nobody else to consult, if the Settlor is deceased and the beneficiaries are minors or young adults with no understanding of legal issues. Trust law is complex and constantly evolving (due to trust litigation) and even senior lawyers have been known to disagree on specific points of trust law even if in general agreement with trust law principles. Who does the protector turn to, for a second opinion, if in a legal dispute with the trustee and knowing that the trustee holds the purse strings when it comes to sourcing legal advice?

Corporate protector services

The Professional Protector Group (PPG) solves these problems by only using corporate entities, as professional protectors, and with all such entities having at least two trusts and/or private foundation experienced directors. I will be the lead director, with most protector entities, as I am the most trust-experienced person in PPG. In addition, I could be the only financial services professional, in the world, to have held senior-level trust business roles with corporate entities in 17 jurisdictions worldwide. ?Nevertheless, I am also nearing retirement age and, thus, there will always be a younger co-director or alternate, so as I can be easily replaced in the event of my decease or my own mental incapacity. ?In this case, the younger director then becomes the lead director and has the responsibility of selecting a still younger trust professional as his/her co-director. The PPG co-directors can consult with each other when it comes to complex legal decisions, and PPG will also have the financial resources to seek independent legal advice if the directors feel the need to source.

As PPG corporate entities will have perpetual life, if properly maintained, then it is possible for a PPG protector to serve as a corporate protector from day 1 of a trust or foundation’s life right through until its eventual termination. Even if the trust or private foundation is dynastic and intended to last for hundreds or even thousands of years. PPG’s individual directors will retire and/or die but so long as the “older/younger director” system is also maintained then there is no reason why PPG entities cannot serve as corporate protectors in perpetuity!

PPG is not the only organization delivering corporate protector services but we fervently believe that none of our competitors enjoy the breadth of knowledge and multi-jurisdiction experience that we offer. Indeed, it is not unusual for clients to state “You seem to know more about trusts than our trustees”. So, that is why we also offer support services, to trustees, with a focus on trust administration, as most senior trust lawyers have never even administered one trust, in their whole careers, while I have been directly responsible for the administration of hundreds of trusts in my prior roles as Head of Trust Services for two multi-office groups. PPG also offers trust accounting and tax advisory services, as well as a cutting-edge compliance application!

Summary

In summary, a PPG corporate protector delivers the following:

*? Multi-jurisdiction trust and foundation knowledge and experience;

* At least two directors for decision-making purposes;

* Perpetual life duration;

* Fast, friendly, cooperative, and price-competitive service;

* Support services for trustees and foundation councils.

If you are interested, in PPG’s services, then please review our website (www.trust-protector.com) and/or ask for a copy of our PDF brochure. Please also feel “free” to contact us, via the contact details listed below, as all initial enquires are free of charge.

For and on behalf of PPG

Ed Rogers, CEO, 4th April 2022

The Professional Protector Group, “Avia”, Fistard Road, Port St Mary, Isle of Man IM9 5HF, British Isles

Whatsapp/Telegram/BOTIM/mobile: +44-7523-403686

www.trust-protector.com / [email protected]