The Trust Protector

Some foreign jurisdictions allow the appointment of a trust protector. As the title indicates, this person is supposed to provide general oversight of trust operations to insure its objectives are met and the law is followed. Usually the grantor has the right to name the protector, and may even assume that position himself but the majority legal view is that a grantor should not also serve as trust protector.

A protector does not manage the trust, but can veto or require trustee actions in some cases, such as distribution of income and assets. Often the protector also has the right to replace the foreign trustee with another nominee, with or without cause. Although a grantor may serve as trust protector, that can give rise to charges of a conflict of interest in some situations. The greater the protector's powers over the trust, the stronger the argument against the grantor serving in that capacity. Alternately, a professional trust protector service can fill this role. Two of the three trust programs listed at the end of this report offer such services.

To protect the trust, when a grantor does serve as trust protector, the trust must have an "anti-duress clause" requiring the offshore trustee to ignore any orders from the protector issued "under duress," as they would be when issued pursuant to a domestic court order.

A U.S. court does have theoretical enforcement powers including ordering a U.S. person to repatriate any offshore funds or assets under a threat of a finding of civil contempt and possible fines. But even that possibility is negated by a properly established offshore trust with an anti-duress clause in its declaration. The clause permits a U.S. trust grantor to claim truthfully that he or she is legally unable to comply with the U.S. court's demand, since the foreign trustee and/or court will not honor the U.S. court's orders or the trust creator's wishes under such circumstances. As to possible contempt rulings against a domestic grantor of an offshore APT, the U.S. Supreme Court has twice held that a U.S. person cannot be held in contempt by a court for failure or inability to do what is not within his power to do, unless he created that impossibility himself.