Regularizing the Trust Protector

• Author: Paul B. Miller
• Position: Professor of Law, Notre Dame Law School
• Pages: 2097-2118

2097

Regularizing the Trust Protector

Paul B. Miller*

ABSTRACT: Increasingly, settlors o f trusts in on-shore jurisdictions are

making use of trust protectors. Prot ectors serve a variety of func tions but

generally speaking they are app ointed to provide additional sec urity for

settlors’ expectations that trust s will be administered in accorda nce with their

intentions. Given the potential breadth and variety of functions pe rformed

and powers wielded by protectors, their use generate s important and profound

theoretical issues. Taking its cues fro m recent efforts to regularize trust

protection, this Article addresses questio ns concerning the extension of

fiduciary duties to trust protectors. Amo ngst other things, it questions th e

tenability of proposals for broad extension of fiducia ry status to protectors and

advocates a structured, fact-based approach to fiduciary characteriza tion of

trust protection mandates accor ding to which they may be considered fiduciary

only if and to the extent they implicate fid uciary powers.

I. INTRODUCTION ......................................................................... 2097

II. THE PROBLEM: THE (ALMOST) INFINITE VARIABILITY

OF TRUST PROTECTION ............................................................. 2102

III. PROPOSED SOLUTIONS, AND THE IR LIMITATIONS ..................... 2106

IV. AN ALTERNATIVE ...................................................................... 2113

V. CONCLUSION ............................................................................ 2118

I. INTRODUCTION

Trust protectors are an orphan of the law, and only slightly less so, of

legal scholarship. The fiduciary regulation of conve ntionally structured trusts

(i.e., those that feature a settlor, trustee(s), and beneficiaries) has drawn

* Professor of Law, Notre Dame Law School. I am very grateful for comments from Tom

Gallanis, Alexandra Popovici, Rob Sitkoff, and Lionel Smith. I am also appreciative of feedback

from fellow symposiasts at the Iowa Law Review Wealth Transfer Law in Comparative and International

Perspective Symposium held at the University of Iowa Colle ge of Law. Further comments would be

most welcome at: paul.miller@nd.edu.

2098 IOWA LAW REVIEW [Vol. 103:2097

considerable attention. The peculiaritie s associated with fiduciary regulation

of conventionally structured charitable trusts are also given thorough

treatment.1 Partly as a result, many trusts scholars hold that fiduciary

administration lies within the otherwise disputed “core” of the common law

trust, even as they disagree about particular facets of trust fiduciary

administration.2 Equally, and not surprisingly, most general treatments of

fiduciary law take the trust as conventionally structured as a paradigmatic kind

of fiduciary arrangement. It is taken for granted that trustees—and no one

else, for the purposes of trust law—are fiduciaries of trust bene ficiaries (or of

trust purposes). Likewise, it is taken f or granted that the fiduciary regulation

of trusts ought to be primarily focused on protectin g beneficiaries.

Trust protectors disrupt common assumptions about the fiduciary

administration of trusts.3 Protectors are interpolated between trustees and

beneficiaries (or, in the case of charitable trusts, regulators) in the

administration of trusts. Genera lly speaking, protectors provide enhanced

protection for settlor intent.4 But, unlike parties to the conventionally

structured trust, the status of the protector is largely undefin ed by law. It is

instead left to the fertile minds of lawyers. Protectors may be granted a variety

of powers (and, indeed, forms of standing not premised on the possession

1. See, e.g., Henry Hansmann, The Role of Trust in Nonprofit Enterprise, in THE STUDY OF

NONPROFIT ENTERPRISE: THEORIES AND APPROACHES 115, 118–21 (Helmut Anheier & Avner Ben-

Ner eds., 2003) (examining the role and responsibilities of fiduciaries in the charitable trust

context); Rob Atkinson, Unsettled Standing: Who (Else) Should Enforce the Duties of Charitable

Fiduciaries?, 23 J. CORP. L. 655, 661 (1998); Evelyn Brody, The Limits of Charity Fiduciary Law,

57 MD. L. REV. 1400, 1418–23 (1998); James J. Fishman, Improving Charitable Accountability,

62 MD. L. REV. 218, 228–31 (2003); Harvey J. Goldschmid, The Fiduciary Duties of Nonprofit Directors

and Officers: Paradoxes, Problems, and Proposed Reforms, 23 J. CORP. L. 631, 638–49 (1998); Geoffrey

A. Manne, Agency Costs and the Oversight of Charitable Organizations, 1999 WIS. L. REV. 227,

237–40; Jeremy Benjamin, Note, Reinvigorating Nonprofit Directors’ Duty of Obedience, 30 CARDOZO

L. REV. 1677, 1687 (2009).

2. See Thomas P. G allanis, The Contribution of Fiduciary Law, in THE WORLDS OF THE TRUST

388, 390–94 (Lionel Smith ed., 2013); David Hayton, The Irreducible Core Content of Trusteeship, in

TRENDS IN CONTEMPORARY TRUST LAW 47, 48–52 (A.J. Oakley ed., 1996); Ro bert H. Sitkoff, Trust

Law as Fiduciary Governance Plus Asset Partitioning, in THE WORLDS OF THE TRUST, supra, at 428,

430–34; Daniel Clarry, The Irreducible Core of the Trust 22–24 (August 2011) (unpublished

LL.M. thesis, McGill University Faculty of Law) (on file with ProQuest Disser tations Publishing).

3. See generally Terence Tan Zhong Wei, The Irreducible Core Content of Modern Trust Law,

15 TR. & TRUSTEES 477 (2009) (desc ribing the ways in which protectors challenge the

understanding of trusts).

4. Lawr ence A. Frolik, Trust Protectors: Why They Have Become “The Next Big Thing”, 50 REAL

PROP. TR. & EST. L.J. 267, 276–82 (2015); see also John F. Wasik, Guardians of Trusts, N.Y. TIMES

(Mar. 12, 2014), https://www.nytimes.com/2014/03/13/business/retirementspecial/guardians-

of-trusts.html (“T[he] legacy part of retirement can be unsettling. If you have planned carefully and

set up trusts and wills, yo u still might have some nagging doubts about how your wishes will be

carried out after you are gone. Say you have appointed a trustee you think you can confide in and

who understands your inten tions. What happens if that trustee turns o ut to be less trustworthy or

dies, or if estate laws ch ange? Then you might need a third par ty called a ‘trust protector.’”).