The offshore industry has done much to promote protectorship as a concept and as a valuable adjunct to a fiduciary relationship.
Apart from those exclusions referred to in the preceding paragraph it is generally not advisable to appoint:
At one end of the spectrum, the protector's role is limited and often viewed with scepticism by trustees and by their advisers, potentially involving uncertainty or hampering administration through having to delay decisions whilst awaiting a protector's consent.
A good protector can however provide not only the settlor but also the trustee with a considerable degree of comfort, particularly as relationships are established and cemented between the trustees and the settlor and his family. Many of the above comments have assumed relatively straightforward structures, however arguably protectors really come into their own in the following circumstances:
In these circumstances, consideration might be given to appointing a corporate protector where the board could comprise a number of individuals whose particular skill sets will help to ensure the smooth running of the trust by personnel, all of who bring something to the relationship, ensuring that the trusteeship runs smoothly with the trust fund invested and utilised to the maximum benefit of the beneficial class.
There can be significant advantages for professional trustees in working with specialist professional protectors, enforcers and guardians who have special skills in fiduciary matters or the tax aspects thereof, or indeed in the underlying business activity in which the settlor and/or trustees are engaged.
A specialist protector can of course retain the power of appointing and removing trustees and can continue to have veto or consent powers over key strategic issues. They also however provide significant comfort for settlors and beneficiaries in providing a mechanism for succession and overview.
This is particularly useful in the context of will trusts, trusts or foundations set up to span generations or in the circumstances previously listed. The trust will be large, complex and multi-generational. There is then an overwhelming need for a system of checks and balances and on-going review in case the original trustee, however competent and trusted, retires or if a corporate is bought or dissolved.
It is in the area of strategic governance that there is the primary need for suitably qualified fiduciary protectors, enforcers of purpose trusts and guardians of foundations, but this does not necessarily involve a major international multi-generation trust.
Even in a smaller, less complex arrangement a professional protector may act as such alongside the trusted family adviser who may lack specialist fiduciary expertise (and who accordingly may not be an ideal protector, or who may simply not want that responsibility) but whose overview of family or commercial matters is still valued and who can act as a quasi-protector alongside the formally appointed one.
A professional protector might be particularly valuable where relations break down between families, such as where there is a court-appointed trusteeship or in the context of a divorce and a fight over trust assets or in the commercial context where the trusteeship is effectively an escrow arrangement.
There may also be a role for a professional protector in reinforcing a trust's standing against claims of sham or against Revenue attack, arguing that the settlor has, for example, retained control or retained valuable economic rights. If the protector is patently not a stooge of the trustees, nor of the settlor, but an independent professional, whether individual or corporate, it should be harder for such allegations to succeed.
Trustees might also welcome the reassurance given to settlors of offering a balance of powers and the security it provides through fostering better relations with settlors or founders.
What is the cost?
There are likely to be cost implications in appointing a protector and in particular, a protectorship committee where almost certainly the members of a protectorship committee will expect to be compensated in some way. Whether or to what extent they should be paid will be a matter for independent consideration in each case, but this will generally mean that the concept of a protectorship committee is likely to be of more appeal in cases where there are significant and/or complex trust funds.
Whether or not a protectorship role is fiduciary will depend on the terms of the trust deed and the nature and extent of the protector's role. In some cases the protector will not assume fiduciary responsibilities, but if his role is proactive rather than simply one of giving consent, failure to carry out his role appropriately may amount to a breach of fiduciary duty.
If a protector simply fails to exercise his powers or does not fulfil his duties, it could hinder the administration and the trusteeship. Such issues can be addressed in part by the express provisions of the trust deed. Ultimately, however, if the trustee's role were so hindered by a protector's failure to act, the trustees would have to consider whether this failure justified an application to court to remove the protector or to proceed without consent.
The role of protectorship can be a complex one but where settlors, most customarily masters of their own wealth and frequently entrepreneurial in nature, are minded to establish a trust, they often want the security of knowing that they have a well informed ally and sometimes one who can make a positive contribution to the settlor/trustee relationship. From a trustee's perspective the constructive potential of a protector's involvement should never be underestimated and may indeed do much to cement and enhance what can be a challenging and complex set of relationships.
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