This new definitive work on trust protectors explains the role and appointment of a protector, their powers and duties including fiduciary capacity, how a protector can be removed from office and the relationship with the trustees.
This new work will cite authorities from various jurisdictions including: Australia, Bahamas, BVI, Canada, Cayman Islands, Cook Islands, England and Wales, Guernsey, Isle of Man, Jersey, New Zealand and the USA. In addition precedents are included which will assist with drafting protector clauses in trust documents.
Foreword
Powers given to persons other than trustees have been widely used in wills and trusts since the early nineteenth century. However, it was during the last quarter of the twentieth century that practitioners in offshore jurisdictions around the world, from the Caribbean to the South Pacific, popularised in trust instruments the person who is empowered to exercise trustee-like authority in the management of trust affairs. The word, ‘protector’, was coined to describe anyone who had an independent power or powers as a non-trustee to intervene in the ongoing trustee/beneficiary relationship. The protection envisaged was presumably of settlors’ intentions, or beneficiaries’ interests, from poor trusteeship. In the early years the power might be simply to receive and check the trustee accounts, to ensure trustees are acting without conflict within the scope of their powers, and to assist in some manner or other when trustees and beneficiaries have differences. However, when intervention in the trust relationship, whether limited or extensive, takes the form of controlling the trustees in the exercise of their powers, such intervention reshapes trustee obligation and, if extensive, affects significantly the remedial aspect of the beneficiary’s rights.
The range of ‘protector’ powers, including administrative powers separate from those granted to the trustees, was of course open-ended. This was an innovation of trust practitioners. The very name given to this intervener varied, and continues to vary, according to the fancy of drafting counsel. Gradually, from an initial monitoring of the proper discharge of trustee duties, and a power to remove and appoint trustees, ‘protectors’ came to exercise an ever wider range of powers over trust asset management. Control increased. Decisions as to who should be beneficiaries, and distributions among them, were in part or in whole made by protectors. The movement offshore, once it had started, seemed to gather steam like a runaway train. In a setting of offshore jurisdictions competing with one another for estate planning business, the idea of a ‘protector’ was driven by onshore resident settlors who essentially wished to retain control of assets and to make investment decisions themselves. But it was not merely the apprehensions of the individual resident in London or New York, seeing title to his assets passing into the hands of foreign trustees on an island, possibly half a world away, that fomented this approach. Many of those creating trusts entertained the view that they were the people to make investment and beneficiary distribution decisions; professionals elsewhere, it was reasoned, would be less informed as to family corporate onshore operations, and also as to relations within onshore families. Ultimately, the settlors who sought to monitor and control included those resident in civil law or other non-common law jurisdictions: the trust concept, once outlined to them, might for whatever reason prove attractive, but for many placing ‘trust and confidence’ in the unsupervised titled ‘management’, let alone integrity, of the offshore trustee was decidedly not.
Nevertheless, the subject of protection and ‘protectors’ is one on which there remains but a small amount of case law and little statutory reference. Moreover, law expressly on the subject of intervention powers still exists only in offshore jurisdictions. Trust texts throughout the Commonwealth’s principal onshore jurisdictions extend from those that describe shortly and provide case authority for the powers given to ‘protectors’ by offshore trust instruments, to other texts which ignore the subject or refer to the whole phenomenon in a few lines. In practice and in academe across the onshore common law world there are those who see this control-intervention use of powers as conceptually contradictory, and functionally destructive, of the very relationship of trustee and beneficiary that is the trust. What is needed, it is said, are not interveners but informed and able trustees.
However, throughout the past decade the use of protectors to monitor, dismiss and appoint, veto the decisions or direct the activities of trustees, has grown. Protectors, individual or corporate, appear routinely in offshore trusts, whether the instrument is drawn offshore or onshore, and powers of intervention – at present more of a monitoring character – are now appearing in onshore domestic (or internal) trusts. I have in mind here, not the state legislation in the United States, but practice in the provinces of Western Canada, which are part of the Commonwealth tradition. Nor, when one thinks of it, should this occurrence be surprising.
In the first place traditional trust practice for over one hundred and fifty years has given powers of appointment of beneficiaries to trustees, to selected beneficiaries, or to third parties who are otherwise strangers to the trust. Powers of maintenance and of advancement are equally traditional. The power to revoke is axiomatic, and onshore trusts will not infrequently contain the grant of powers to vary administrative or dispositive trust terms, and to terminate the trust. Secondly, many drafting counsel are sufficiently familiar with the ‘protector’ offshore that with settlor or beneficiary advantage in mind they readily recognise circumstances for using such a power holder in domestic trusts. Imagine, for instance, a ‘protector’ whose tailored task it is to monitor the trustee management of a trust exclusively for minors or elderly persons. Thirdly, trustee control is not a new practice. Since the nineteenth century settlor-reserved powers, such as the power to approve the sale of a house or of specific corporate shares, have been well established, albeit limited as in the above example in the degree to which they control the trustees. From time to time in contemporary practice, inspired perhaps by corporate shareholders’ powers and pension plan trusts, limited administrative control powers in trust beneficiaries are now met. And there is more. The power to remove and replace trustees granted to a principal adult beneficiary, with all the potential control implications that that has, seems accepted practice. Indeed, the limited number of mandatory rules in the law of trusts itself suggests that, absent statutory prohibitions, the common law system ultimately leaves the character of his trust instrument to the settlor’s choice.
The distinction between the traditional powers of appointment, of maintenance and advancement, and the intervening control powers of today that are capable of reducing the trustee almost to bare trusteeship, is of practical as well as conceptual importance. It is therefore striking that there is not more in print to assist those who draft. There is the description in international trust texts of such ‘protector’ case law as exists, plus the sparse statutory law. And in addition there are a number of journal articles tackling the jurisprudential issues involved with these control powers. However, the practitioner, offshore or onshore, is faced with a span of practical issues that should be considered prior to any introduction of ‘protectors’ and non-trustee control authority.
Suppose one is faced with drafting or producing a critique of another’s draft. The drafter may well think of successor ‘protectors’, accountability, unfitness to act, and in general the consequences of disagreement between ‘protector’ and trustees. Nor would that drafter deny the ease with which one may slip into ambiguity in drafting powers. For instance, it must be demonstrably clear whether a power is intended to be personal, as opposed to the more familiar fiduciary power. But how many of us, when engaged on such a task, would reflect whether a ‘protector’ with fiduciary powers may also be given personal powers? And would we consider and inquire into the laws governing the trust as to whether, if a corporate ‘protector’ in an offshore trust goes into receivership or liquidation, the receiver or trustee in bankruptcy is in a position to exercise the ‘protector’ powers? Drafting for future sunlit days is one thing,but everyone is aware that the real test of any draft is the presence of appropriate provision for the unexpected occurring. It is no different when drafting powers. At what point in providing for these occurrences does the draft pass from a practical document to something prolix and cumbersome, replete with provisos and qualifying clauses? Such an outcome – construction advice seems needed at every turn – is less than helpful for the trustees and the ‘protector’.
A sustained monograph is surely required, giving status to the subject and bringing together for the practitioner discussion of each of the interrelated issues that use of ‘protectors’ entails. Andrew Holden’s seminal work takes up this challenge.
Clearly and simply written, and within a relatively short space, the author provides coverage of the questions that the practitioner should be asking from the moment that a ‘protector’ is proposed to the closing considerations of the liabilities and indemnities to be attached to the appointment. Where ‘protector’ law does not exist, the author makes it plain that he is discussing the issue by reference to the case-law concerning the trustee in a similar position, or to the law governing powers in general that are used in wills and inter vivos trusts. The degree of appropriateness of the analogy being drawn the author is not shy to leave to the reader, but thought and argument are provided for the practitioner looking around for help.
To be the first to write at booklength on a subject, much of which is yet to be considered by the courts or even recognised by onshore legislation, requires both experience in the field, and the mettle of a musketeer. The need of the practitioner nevertheless exists and Andrew Holden puts us all in his debt by assuming the task. His work, which it is my pleasure to welcome, will be of particular interest to those practicing in England and Wales, and in the present and former British territories offshore and overseas. But it is not likely that interest will stop there.
Donovan Waters QC
Victoria, British Columbia
Canada
Contents
Dedication
Foreword
Preface
Table of Cases
Table of Statutes
Table of Statutory Instruments
Table of Foreign Legislation
Table of Abbreviations
- Introduction
- Fiduciary Position
- Appointment of Protectors
- Powers
- Limits of the Protector’s Powers
- The Protector’s Duties
- Rights of Protectors
- Judicial Control of the Protector’s Powers
- The Protector’s Personal Liability
- The Trustees’ Relationship with the Protector
- Death, Resignation and Removal of Protectors
- Appendix 1
- Precedents
- Appendix 2
- Statutory Materials
- Appendix 3
- Bibliography
- Index
Published: September 2011
Edition: 1st
Format: Hardback
ISBN: 978 1 84661 252 7
Author: Andrew Holden
Category: Private Client
Price: £95.00
No comments:
Post a Comment