by: Begley Law Group

by Thomas D. Begley, Jr., Esquire, CELA

Victims of personal injuries who receive significant settlements often require trusts.  If the victim is receiving public benefits, such as SSI, Medicaid, SNAP (food stamps), federally-assisted housing, energy assistance, etc., a Self-Settled Special Needs Trust is required.  If the beneficiary is not receiving benefits but is a minor or incapacitated person, a Settlement Protection Trust is often a useful tool.  Even when the injured plaintiff is an adult with capacity not receiving public benefits, a Settlement Protection Trust may make sense.

The trustee administers the trust by investing the funds.  Typically the trustee utilized a balanced portfolio of roughly 60% equity and 40% debt.  The trustee renders periodic accountings to the beneficiary and/or family members, and make distributions in accordance with the trust document and, in the case of Special Needs Trusts, in compliance with state and federal laws.  The trustee should be mindful that if trust funds are expended too rapidly, the corpus will be exhausted during the beneficiary’s lifetime.  Good practice dictates that the trustee meet with the beneficiary and/or family members and identify immediate cash needs and develop a budget for recurring expenses.  During these initial meetings, the trustee should explain the limits on trust distributions when the trust is to last for the lifetime of the beneficiary.

Problems do arise where the trustee mismanages investments and/or where the beneficiary and/or family members are dissatisfied with the distribution decisions being made by the trust.

A corporate trustee is almost always a better choice than a family member.  The family members has a target on his or her back.  If he or she fails to administer the trust properly, he or she can be subject to a surcharge by an interested party.  This is particularly true if the plaintiff is receiving public benefits.  Public benefit rules change frequently, family members do not keep abreast of the changes and often administer the trust under the old rules.  Public agencies then want to be repaid and have a right to sue the trustee personally.  Plaintiffs and their families are reluctant to deal with professional trustees, because they are unknown entities.

The solution is to utilize a trust protector.  Trust protectors give family members a sense of control.  Occasionally good professional trustees become bad trustees, because key people leave or a larger entity takes over a smaller entity and is no longer interested in serving as trustee particularly if the trust is a Special Needs Trust.  The trust protector is a useful tool to be considered.

  • Who Should Serve as Trust Protector? The trust protector is usually a family member.  In a Self-Settled Special Needs Trust it should not be the beneficiary of the trust or a guardian of the beneficiary.  Responsible parents or siblings are often very good choices to serve as trust protector.  An attorney or accountant might also be a good choice to serve as trust protector.
  • Powers of the Trust Protector
    • Remove and Replace Trustee. The trust protector can be given the authority to remove the corporate trustee, with or without cause, and to replace the corporate trustee with another corporate trustee who is not related to or subordinate to the beneficiary within the meaning of Internal Revenue Code (“Code”) 672(c) to act in the place of the trustee so removed.  The trust document might impose restrictions on the appointment of the successor trustee, such as minimum assets under management.
    • Resolve Disputes. The trust protector could also serve as an unofficial mediator between the trustee and the beneficiary.  Occasionally, a beneficiary would want a distribution for a certain purposes that the trustee feels is inappropriate.  The trust protector, although having no real authority, can often serve as an intermediary between the parties.
    • Amend the Trust. The trust protector can also be given the authority to amend the trust due to changes in the law without the necessity of going back to court and obtaining court approval.


  • Appointment of Successor Trustee. If the initial trustee resigns voluntarily, the trust protector can be given the authority to name a successor trustee.  Again, restrictions can be included in the document granting this power limiting the appointment to a corporate trustee with a specified amount of assets under management.
  • Terminate Trust. The trust protector could be given the right to terminate the trust or to significantly modify the terms of the trust without court approval.  An example would be if there is a beneficiary of a Special Needs Trust no longer requires public benefits, the trust protector would be given the authority to terminate the trust and distribute assets or to convert the Special Needs Trust to a Settlement Protection Trust.
  • How is a Trust Protector Appointed? The trust protector is appointed in the trust document.  Good practice dictates the appointment of an initial trust protector or co-trust protectors as well as a successor trust protector.
  • The issues of compensation can be addressed.  Typically a trust protector serves without compensation, but compensation can be provided in appropriate circumstances.  The document should always provide that the trust protector be reimbursed for all reasonable expenses.
  • Fiduciary Responsibility. Typically the document provides that the trust protector does not have any fiduciary responsibility.
  • Bond Waived. Trust protectors are generally not required to post bond.
  • A trust protector should always be given the right to resign, and provisions should be made for the appointment of a successor trust protector if a vacancy occurs.  The law firm drafting the documents is often a good choice.
  • Exercise of Trust Protector’s Powers. Any action taken by the trust protector should be by a written instrument delivered to the trustee being removed and to the trustee being appointed, as well as to the beneficiary of the trust and the grantor, if the trust is still living.