Trustee Knowledge Series: Advanced Paper Six: Overview Of Protectors 'Ad Serviendum Ac Protegendum"

• Published date: 06 January 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Trusts
• Law Firm: Appleby
• Author: Mr David Dorgan

Protectors are common in trusts, particularly offshore trusts with professional trustees, where settlors want to ensure there is someone who can provide checks and balances on the often wide-ranging powers of trustees.

ROLE OF A PROTECTOR

Unlike trustees, protectors are not the legal owners of trust assets. Rather, protectors in respect of the trust have negative (consensual) powers, in accordance with article 24(3) of the Trusts (Jersey) Law 1984 (as amended) (Law), and/or positive powers in accordance with article 9A of the Law. The positive power, for example, to appoint and/or remove trustees or the consensual/negative power to consent/veto the exercise by a trustee of its powers will not mean the protector is a trustee. The protector's role, which depends upon the drafting of the trust instrument, is in essence to monitor actions of a trustee and check appropriate action is taken to protect the trust assets and this will involve the protector being entitled to trust information.

The role of the protector is important in the dialogue between the 'parties' to a trust. A trusted and reliable protector may have an important role in guiding the trustees as to how the settlor would have liked to have seen trust assets dealt with in any particular circumstance. Whilst not always the case, many structures work very well where a trusted and long-standing family friend is appointed protector in a 'paternal' role to ensure some continuity in the structure with which, unlike the institutional trustee, the person is familiar. This Protector may, depending on the trust, benefit from being joined by a professional protector (see Committees below).

However the role of a protector may also occupy a fiduciary position with associated duties (i.e. does the protector have a duty to act in the best interests of the beneficiaries?). We look at whether protectors occupy a fiduciary or personal position.

CHOOSING PROTECTORS

What should settlors (or their advisers) consider when appointing a protector?
As alluded to above, the most important issue for a settlor is the identity of any potential protector.

• Protectors typically have a very large degree of influence over structures and as a result great care must be exercised in their selection. If there is no clear candidate or need, the office is probably best avoided altogether.
• Settlors must also consider the tax profile of any potential protectors (depending on the jurisdictions involved and the amount of powers the trust instrument will confer on them) to avoid any potential argument that the protector's residence may affect the trust for tax purposes.
• Further consideration is needed as to the whether the protector needs to be reported as part of the Common Reporting Standard and/or feature on an EU trust register. Individuals, like a family friend, may be less willing to act as a...