An irrevocable trust can designate a trust protector and give him or her certain powers, for example, to change the trustee or to move the trust administration to a different jurisdiction. A trustee is a fiduciary because he or she owes a high duty to the trust beneficiaries, but it is not always clear whether a trust protector is a fiduciary or what standard should be used to evaluate his or her actions or non-actions.
In a district court case from Missouri called McLean, the trust said that the protector was a fiduciary but was not liable for actions taken in good faith. It gave the protector the power to remove the trustee.
The trustee made inappropriate and excessive expenditures which effectively bankrupted the trust. A successor trustee sued the protector for failure to remove the initial trustee.
The court of appeals reversed a trial court order which dismissed the case on a summary judgment motion and instructed the trial court to establish the duties of the protector and to whom they were owed. At the subsequent trial, the trial judge excluded expert testimony offered by the trustee, took the case away from the jury, and decided in favor of the protector.
While this ruling is on appeal the message to protectors is clear: if you passively wait for someone to suggest to you that you should take some action that you have the power to take, you may be incurring liability to the trust beneficiaries for such inaction.