Trustee vs Protector

The role of the trustee

The trustee is the cornerstone of the trust. The trustee is the legal owner of the trust assets and assumes fiduciary responsibility for administering them in the exclusive interest of the beneficiaries, in accordance with the terms of the trust deed and the applicable law. The trustee is subject to fundamental fiduciary duties that form the bedrock of their responsibility.

Fundamental duties of the trustee

• Duty of loyalty: The trustee must act in the exclusive interest of the beneficiaries, without conflict of interest and without deriving personal benefit from the position (beyond agreed fees).
• Duty of care: The trustee must administer trust assets with the care and diligence that a reasonable professional would bring to the management of entrusted property. This standard is all the more demanding for a FINMA-licensed professional trustee.
• Duty of impartiality: When there are multiple beneficiaries, the trustee must treat the different classes of beneficiaries fairly, balancing the sometimes divergent interests of current and future beneficiaries.
• Duty to inform: The trustee must account for its management, maintain accurate records and provide relevant information to authorised beneficiaries.
• Duty not to delegate improperly: The trustee may delegate certain functions (wealth management, accounting) but retains ultimate responsibility for supervising delegates.

Powers of the trustee

The trustee's powers are defined by the trust deed and typically include:

• The power to invest trust assets
• The power to distribute income and capital to beneficiaries (in a discretionary trust)
• The power to add or exclude beneficiaries (according to the terms of the trust deed)
• The power to appoint agents, advisers and managers
• The power to acquire, sell or manage assets
• The power to amend certain provisions of the trust (within the limits provided by the deed)

The role of the protector

The protector is a role that does not exist in traditional English trust law but has been developed through practice, primarily in offshore jurisdictions. The protector is a person (natural or legal) appointed in the trust deed to exercise certain powers of control or oversight over the trustee. Their role is to ensure that the trustee acts in accordance with the settlor's intentions and in the interest of the beneficiaries.

Typical powers of the protector

The protector's powers vary considerably from one trust to another and are entirely defined by the trust deed. The most commonly conferred powers include:

• Power to remove and appoint the trustee: This is the protector's most fundamental power, enabling the replacement of a defaulting or unsuitable trustee without recourse to the courts.
• Power of consent: The trust deed may require the protector's consent for certain trustee decisions, such as capital distributions above a certain threshold, the addition or exclusion of beneficiaries, or amendments to the trust deed.
• Power of veto: The protector may have a right of veto over certain trustee decisions, without the power of initiative.
• Power to change the governing law: In some trusts, the protector may change the jurisdiction of the law governing the trust (proper law).
• Power to change the place of administration: The protector may have the power to transfer the administration of the trust to another jurisdiction.

Interaction between trustee and protector

The relationship between the trustee and the protector is a key element of trust governance. Good structuring provides clear mechanisms for interaction and conflict resolution:

• Regular communication: The trustee must keep the protector informed of its decisions and the management of the trust. The frequency and content of this communication are generally defined in the trust deed or agreed between the parties.
• Consent procedures: Where the protector's consent is required, clear procedures must be established (response deadlines, consequences of silence, etc.).
• Independence: The protector must maintain independence from the trustee to effectively exercise their supervisory role. They should not be an employee, partner or affiliate of the trustee.
• Limits on powers: The protector's powers should be defined so as not to paralyse trust administration or create a de facto "second trustee." A protector with overly broad powers may undermine the functioning of the trust and create tax issues.

Practical considerations for structuring

The choice of a protector and the definition of their powers require careful consideration. Several factors must be taken into account:

• The settlor's confidence in the trustee: the greater the confidence, the less extensive the protector's powers need to be
• The intended duration of the trust: for long-duration trusts (dynastic trusts), a protector is generally recommended to ensure continuity of governance
• The complexity of the family situation: complex family situations (blended families, potential conflicts between beneficiaries) may justify an independent protector
• Tax implications: in certain jurisdictions, the protector's powers may affect the tax treatment of the trust
• Succession of the protector: the trust deed must provide for the mechanism of replacing the protector in the event of death, incapacity or resignation