Protectors and Jersey trusts02 Jul 2013
It is common for Jersey trusts to include provisions appointing a protector and vesting in the protector varying degrees of responsibility for overseeing or intervening in the administration of a trust.
What is a protector?
In practice, a protector is ordinarily appointed to act as a "bridge" between the settlor and the trustees. The settlor may be unfamiliar with his or her chosen professional trustees, Jersey as a jurisdiction, or the concept of a trust. Understandably, there may well be a reluctance on the part of the settlor to give up title and control of trust assets without some form of oversight mechanism in place. A protector can help to fulfil this oversight function.
The trust instrument will usually provide for the appointment of the first protector and those areas of the trust where the protector's oversight is required. The settlor and the trustees will ordinarily agree these areas in advance and the trust instrument will be drafted accordingly.
Although the appointment of protectors is common, there is no express provision for this role in the Island's trusts legislation.
Who may be a protector?
There are no restrictions as to who may be appointed as a protector of a trust. It is common practice for a settlor's professional adviser to be appointed (e.g. a long standing family lawyer or accountant) or perhaps a trusted friend or relative.
When considering candidates for the office of protector, it is important to ensure that the appointed person has the necessary skills and understanding to perform the role. The office of protector may be held by an individual, a committee or a corporate entity.
Provision should always be made in the trust instrument for a protector's succession. This ensures that, should the protector be incapacitated in any way, the trustees are not left in a position where they are unable to exercise their powers.
There is no rule against the settlor or any beneficiary of a trust also being the protector of that same trust. An appointee from within the family may have an in depth understanding and knowledge of the family members and their respective needs and requirements and the trust fund itself (e.g. shares in a family business) which favours his or her appointment. On the flip side, an appointee from within the family may find it more difficult to exercise or be seen to be exercising his or her powers as protector in an impartial manner, particularly in the event of family discord or hostile litigation. An alternative approach might be to appoint a non-family member such as a long standing professional adviser to the family who has no interest in the trust and is more likely to be and be seen to be impartial in the exercise of his or her powers.
Choosing the right protector and providing for succession is key in implementing long term dynastic planning, particularly where the protector is vested with the power to remove trustees.
What are the functions of a protector?
A protector's functions and role will usually be determined by the terms of the trust instrument itself. Generally, he or she will have a mandate to perform an oversight function of the trustees in terms of the exercise of key powers.
It is common practice for the protector to be given a power of veto and to be required to provide his or her prior or simultaneous written consent to the exercise of certain powers by the trustees. Typically, the powers requiring consent may include, but are not limited to:
– addition or exclusion beneficiaries;
– appointment of capital or income;
– termination of the trust;
– shortening the trust period;
– changing the proper law; and
– alterations or variations to the trust.
Indeed, a protector's power of veto can be attached to a broad range of trustees' powers, both dispositive and administrative, dependent upon the wishes of the settlor. This power of veto may be described as a negative power.
Alternatively, a protector may be given positive powers. For example, the protector can be vested with the power to appoint and remove trustees. A protector can also be given the power to direct trustees on certain matters.
What are the responsibilities of a protector?
As the nature and extent of a protector's role will vary from one trust to another, it will be a question for determination on each occasion whether all or some of the protector's powers are, or should be, fiduciary. Some powers (such as the power to appoint trustees) will normally be fiduciary, but it may be appropriate for certain powers to be given to a protector in a beneficial capacity (so that they can be exercised as the protector chooses, for his or her own benefit), or in a limited capacity (so that they must be exercised in good faith for the purposes for which they are given).
Where the protector's powers are fiduciary, the protector must consider from time to time whether or not to exercise his or her powers and can only exercise those powers in good faith in accordance with the terms of the trust and in the interests of the beneficiaries as a whole.
Rights of a protector
In order to carry out his or her duties properly, a protector may need to be able to view the trust accounts and any other trust documents relevant to the exercise of his or her powers. Given that there is no statutory provision dealing with the disclosure of information to a protector, it can be helpful if the trust instrument addresses this. On a practical level, the protector may also wish to have the ability to discuss with the trustees the key provisions of the trust which relate to the exercise of his or her powers.
Right to remuneration and exculpation
Where it is proposed that a protector should be able to charge for his or her services, this should be provided for in the trust instrument. Similarly, appropriate exculpatory language should be incorporated within the trust instrument to protect a protector against the consequences of his or her actions, together with a right of indemnity out of the trust fund.
Removal of a protector
Whilst there are no statutory provisions regarding the removal of protectors, the Royal Court has confirmed that it has jurisdiction (albeit that jurisdiction should not be exercised lightly) to remove a protector in circumstances where the continuance of the protector in office would be detrimental to the execution of the relevant trust.