Why Appoint A Protector In Special Needs Trust?

The concept of trust is a 3 tier structure- There is a settlor who creates the trust, there is a trustee who manages  the trust and there is the beneficiary who benefit from the trust. When a trust is created the rules are laid down by the settlor. The rule says that  the trustee will manage the affairs in a fiduciary capacity without any interest in the trust.

Appoint a Protector

But history has proven otherwise. There are numerous cases where trustees have served their interest as the powers comes to their hand. Till today we can find litigation in the court where trustees have been charged with the unfair practices. This has resulted in jeopardizing the purpose of the trust and benefit to the beneficiary.
There are numerous ways where a trustee can hit a trust. Charging of exorbitant fees for the services and hiring professionals from their own network to benefit their interest are common. But trustees have even fallen a trust into litigation to serve their own interest. These are the concerns which parents of special needs children have when they think about forming a trust for a special needs child. By appointing a “Protector” in a trust for a special needs child these concerns can be addressed.

Who is a Protector?

In US in 1990s the concept of protectors in a trust came into existence. The protector was given powers even to remove the trustee on any misconduct. Since then the trust has evolved and protectors are vest with powers to appoint new trustees. But concerns rose that it may give extra-ordinary powers to one person and so the trust today limits protectors to appoint trustees in their network. Thus protectors were introduced to foresee the functioning of trust but with limited powers.

Though in India a protector does not have a legal sanctity still it does not stop a trust to appoint a protector. His/her role is to foresee the function of the trust so that any misconduct by a trustee does not take place. The protector won’t have legal powers to remove trustees or appoint trustees but will be party to major decision making. The protector can raise questions if any misconduct takes place.

Who can be appointed?

Every parent will like to involve a family member for the child lifetime care. Along with the legal guardianship of the child for personal affairs the family member can be appointed as a protector in the private trust. But there is no restriction who can be appointed. Even a close friend/distant relative can be given the role of a protector in a private trust created for a special needs child.

What is the role of the Protector?

By law a protector is not a must in a trust in India. But recently many family trusts have started appointing a close family member or a relative or a friend as a protector along with a corporate trustee. A  corporate trustee looks after day to day functioning of the trust. Whereas the protector will participate in most decision making such as investment of funds, distribution of income to beneficiaries, releasing any additional surplus in need etc. The settlor while appointing will entrust protector with powers of decision making in various aspects of the child life stage. It can be decision related to availing services for child, decisions on child residential needs or even decision on funding the trust. Whenever such decisions are taken then trustees and protector discuss with each other and finalize.

Thus a protector can be a guiding resource in running the trust when parent acting initial trustees are no more. Ideally a protector role comes into picture only after the death of the first trustee which can be parents.

What powers can be given to Protector?

A protector is not a legal sanctity. Ideally a protector role is to oversee the functioning of the trust. Keeping this in mind the protector should be given powers in decision making of the trust in various matters. However, care should be taken that a protector should not play a role of a trustee. The trust deed should explicitly mention that the appointed person is not a trustee and do not have a fiduciary duty to anybody or has any duty to act.

In India we do not any explicit law related to protector and so giving any powers to remove or add any trustee should be avoided. Yes the protector will play an important role in ensuring that the trustee are taking a decision for the benefit of the beneficiary. This can happen only when a protector ideally is separate from a trustee.

A protector has to work in sync with the trustee to ensure the smooth functioning of the trust. With a special needs child many decisions would be taken where he/she will be required. When a corporate trustee works with a protector the trust is empowered with many benefits. Where a corporate professional trustee brings expertise and knowledge the protector will bring the understanding family dynamic thus addressing the emotional issue of the family.

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About the Author

Jitendra P.S. Solanki

Jitendra is a SEBI Registered Investment Adviser (INA10000184) and has earned the much-respected professional designation of Certified Financial Planner (CFPCM ) and Chartered Trust & Estate Planner (CTEPTM). He is a post graduate from IIT - Roorkee and has spent 15 years in Financial Services Industry working with leading financial institutions & Banks, advising families on their Financial well-being. Jitendra specializes in advising families with special needs children on various financial & legal aspects.

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