Directed Trust Advisors and Protectors

Decanting and Section 114.0031

In 2013, Texas enacted decanting statutes by adding Section 112.071 to the Texas Trust Code. That means the provisions set forth in the Trust Agreement of an existing irrevocable trust (the first trust) can be different from the provisions in the second irrevocable Trust Agreement.

Prior to this change in Texas trust law, there was essentially no way to revise the provisions of an irrevocable Texas trust except to go to court.

In reality, the second trust is a carryover of the net assets from the first trust. The beneficiaries of the first trust cannot be changed. Even the second trust’s tax ID number is the same as the first trust’s.

One result of the passage of the decanting statutes was that, in 2015, Texas adopted Section 114.0031 of the Texas Trust Code. This added detailed provisions regarding the powers and duties of trust advisors and protectors.

Powers of a Trust Protector

A protector possesses all powers and authority granted by the terms of the trust, which may include:

• The power to remove and appoint trustees, advisors, trust committee members, and other protectors.
• The power to modify or amend the trust terms to achieve favorable tax status or to facilitate efficient administration of the trust.
• The power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the trust terms.

Role and Powers of an Advisor

If a trust grants an individual the authority to direct, consent to, or disapprove a trustee’s investment decisions, distribution decisions, or other actions, that individual is considered to be an advisor.

• An advisor acts as a fiduciary, regardless of any contrary provisions in the trust.
• An advisor may remove and appoint trustees, advisors, trust committee members, or other protectors.
• An advisor may modify or amend trust terms to achieve favorable tax status or to facilitate the efficient administration of the trust.
• An advisor cannot use their power to appoint themselves to any of the aforementioned positions.

The above discussion does not exhaust the powers of advisors and protectors.

Final Thoughts

Coming up with a legal way to make changes to an irrevocable trust is genius. An example is the decanting rule. By enacting these provisions, protectors have the power to remove and appoint trustees or modify the trust.

Prior to the changes brought about by the decanting rules, trustees were all-powerful in the administration of trusts. But the needs of beneficiaries change. The provisions of Section 114.0031 offer opportunities for rational decisions that better serve those beneficiaries.