Historically, the concept of a protector developed in offshore jurisdictions where settlors were (perhaps understandably) concerned about appointing a trust company in a small, distant country as sole trustee of an offshore trust which is to hold a great deal of the settlor's wealth. However, protectors now form a part of mainstream tax planning in most jurisdictions which recognise trusts.
There are a number of reasons that a settlor may wish to appoint a protector in relation to a trust:
The powers vested in the protector vary both according to the proper law of the trust and the terms of the trust instrument. They include power to:
Conceptually many commentators have difficulty with the idea of a protector, as this undermines the role which in law has historically been fulfilled by the trustees. As protectors are a relatively recent innovation in trust law, case law is scant. Is it not even clear if as a matter a law a protector would owe fiduciary duties to the beneficiaries (although in practice, many trust instruments expressly state that they shall).
It is sometimes suggested that where the protector is too close to the beneficial interest in the trust (for example, if the protectors have power to confer benefits upon themselves, directly or indirectly) this may destroy the essential nature of the trust. If the protector has power to grant beneficial interests in the trust fund to the settlor, this may have disastrous tax consequences in some jurisdictions.