1301002 Informal Interpretation

Michael Verne

- the corporation is its own UPE. K Walsh concurs.





Thursday, January 03, 2013 1:40 PM


Verne, B. Michael


Trust Protectors and control under 801.1(b}


I have a question as to whether a Trust Protector controlsa trust. I have only seen this addressed in one informal opinion:


TrustProtectors seem to be used primarily in non-US trusts. They are separatelydesignated fiduciaries appointed by the Grantor, presumably to ensurecompliance with the Grantor's intent of the Trust, and as such they may havepower to enforce trust provisions thereby also protecting the interests of allinvolved including the beneficiaries.

Hereare my facts as I now understand them. This relates to family trusts holdingvoting shares in a UK corporation. Grantor holds approximately 30% of thecorporation directly. Grantor established a number of family trusts whichcollectively hold the remaining shares of the corporation, although no onetrust holds 50% or more of the voting shares of the corporation. None of thetrusts are revocable and the Grantor does not have a reversionary interest inthe corpus of the trusts. Grantor does not have the power to remove and replace50% or more of the trustees of any trust. Grantor does appoint a TrustProtector for each trust. However, Grantor can only appoint not remove theseTrust Protectors. I understand that the Trust Protector terms are fairly short,likely close to six months and then subject to reappointment which is notrequired. The Trust Protectors have the power to remove and replace 50% or moreof the trustees for each trust of which they are designated the TrustProtector. As you note in the above informal opinion, this last fact couldsupport a conclusion that a Trust Protector controls each trust it isdesignated to protect. (However, for reasons detailed below, I think this isnot the right conclusion.) Finally, Grantor has designated the same naturalperson as the Trust Protector for each of the family trusts collectivelyholding approximately 70% of the voting shares of the corporation. Althoughthis could lead to a conclusion that the Trust Protector is the UPE of thecorporation, I think that this is not a correct conclusion for the followingreasons:

1. First and foremost, the Trust Protector is very much aform of a trustee, in a sense a trustee of trustees or a super trustee. Like atrustee, the Trust Protector is a fiduciary appointed by the Grantor to protectthe interests of all involved -the Trust, the Grantor and the beneficiaries.Certainly, if the Grantor appointed the same person as trustee to each familytrust, that would not make the trustee the UPE of the corporation.

2. Further, although the Grantor may not remove the TrustProtector, as with trustees the rights of the Trust Protector are limited. Theterm is short, the powers are limited, and I suspect that they can be removedfor cause. Also, at the end of this short term, the Grantor can appoint a new TrustProtector if he chooses.

3. Although in this case the Trust Protector is the sameperson for each family trust, the Trust Protector has a unique fiduciaryobligation to each family trust, again much like a trustee, and no one trustholds a controlling share in the corporation.

4. Also like a trustee, there is nothing in the role ordesignation as Trust Protector that would give that person any rights to thecorpus of the trust, any rights to revoke the trust or any reversionaryinterests. As with a trustee, the Trust Protector is strictly a fiduciary.

5. The Trust Protector is not and cannot be either abeneficiary of the trusts and the Grantor cannot appoint himself as TrustProtector. A conclusion that this "unrelated" fiduciary with no economicstake in the corpus of the trusts is the UPE would seem unusual andinconsistent with the intent of 801.1(b}.

Forall these reasons, I think it is appropriate to consider the Trust Protector asa form of a trustee, and as such conclude that as with trustees the TrustProtector does not have control of a trust to which it is appointed as afiduciary. Therefore, here the corporation would be its own UPE.

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