Trust Protector Agreement

TRUST PROTECTOR AGREEMENT

State of Texas

Under Tex. Prop. Code § 114.0031

ARTICLE I — PARTIES AND RECITALS

THIS TRUST PROTECTOR AGREEMENT ("Agreement") is entered into as of [__/__/____] ("Effective Date") by and among:

Section 1.1 — Recitals

WHEREAS, the Grantor established the [________________________________] ("Trust") on [__/__/____] pursuant to the laws of the State of Texas;

WHEREAS, the Trust instrument authorizes the appointment of a Trust Protector as a "protector" within the meaning of Tex. Prop. Code § 114.0031(d);

WHEREAS, Tex. Prop. Code § 114.0031 establishes the framework for directed trusts in Texas, distinguishing between "advisors" (who direct, consent to, or disapprove trustee decisions under subsection (a)) and "protectors" (who hold broader structural powers under subsection (d));

WHEREAS, under Tex. Prop. Code § 114.0031(d), a protector has all the power and authority granted to the protector by the trust terms, 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; and the power to modify, expand, or restrict the terms of a power of appointment;

WHEREAS, under Tex. Prop. Code § 114.0031(e), an advisor (and by extension a protector exercising advisor-type functions) is a fiduciary regardless of trust terms to the contrary, except as limited by subsection (f);

WHEREAS, the Grantor desires to appoint the Trust Protector and to define the scope of the Trust Protector's authority; and

WHEREAS, the Trust Protector is willing to accept such appointment subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows:

ARTICLE II — APPOINTMENT AND ACCEPTANCE

Section 2.1 — Appointment

The Grantor hereby appoints [________________________________] as Trust Protector of the Trust, effective as of the Effective Date. The Trust Protector shall serve as a "protector" within the meaning of Tex. Prop. Code § 114.0031(d).

Section 2.2 — Dual Role Designation

To the extent the Trust Protector exercises powers to direct, consent to, or disapprove the Trustee's investment decisions, distribution decisions, or other decisions, the Trust Protector shall also be deemed an "advisor" within the meaning of Tex. Prop. Code § 114.0031(a), and the applicable provisions regarding advisors shall apply.

Section 2.3 — Acceptance

The Trust Protector hereby accepts the appointment and agrees to exercise the powers granted hereunder in accordance with this Agreement, the Trust instrument, and applicable Texas law.

Section 2.4 — Effective Period

This appointment shall remain in effect until terminated in accordance with Article IX of this Agreement.

ARTICLE III — POWERS OF THE TRUST PROTECTOR

Section 3.1 — Protector Powers Under Tex. Prop. Code § 114.0031(d)

The Trust Protector shall have the following powers. Select all that apply:

Appointment and Removal Powers (§ 114.0031(d)(1)):

☐ Remove and appoint Trustees, with or without cause
☐ Remove and appoint advisors (as defined in § 114.0031(a))
☐ Remove and appoint trust committee members
☐ Remove and appoint other protectors
☐ Appoint successor or additional Trustees

Trust Modification and Amendment Powers (§ 114.0031(d)(2)):

☐ Modify or amend the Trust terms to achieve favorable tax status or to facilitate the efficient administration of the Trust
☐ Modify or amend the Trust instrument to respond to changes in the Internal Revenue Code, Treasury Regulations, or other federal tax law
☐ Modify or amend the Trust instrument to respond to changes in Texas law or the law of any other applicable jurisdiction
☐ Amend the Trust instrument to correct scrivener's errors, ambiguities, or drafting deficiencies
☐ Change the situs of the Trust to another jurisdiction, including amending the governing law provision
☐ Convert the Trust between unitrust and traditional income formats

Power of Appointment Modifications (§ 114.0031(d)(3)):

☐ Modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the Trust terms
☐ Grant new powers of appointment to beneficiaries
☐ Revoke existing powers of appointment

Additional Powers (if the Trust Protector also serves as an Advisor under § 114.0031(a)):

☐ Direct, consent to, or disapprove the Trustee's investment decisions (investment advisor)
☐ Direct, consent to, or disapprove the Trustee's distribution decisions (distribution advisor)
☐ Direct, consent to, or disapprove other decisions of the Trustee: [________________________________]

Beneficiary-Related Powers:

☐ Add or remove beneficiaries of the Trust, subject to Section 3.3
☐ Adjust beneficial interests among existing beneficiaries
☐ Approve or veto discretionary distributions to beneficiaries
☐ Establish or modify distribution standards

Investment and Administrative Powers:

☐ Direct or veto investment decisions or modify the investment policy
☐ Approve or direct the acquisition, retention, or disposition of specific Trust assets
☐ Authorize the Trustee to engage in transactions that would otherwise constitute self-dealing

Termination and Distribution Powers:

☐ Terminate the Trust, in whole or in part
☐ Direct early termination and distribution of Trust assets
☐ Divide the Trust into sub-trusts or merge sub-trusts

Dispute Resolution Powers:

☐ Interpret ambiguous provisions of the Trust instrument, with binding effect
☐ Mediate or resolve disputes among beneficiaries
☐ Authorize or direct legal proceedings on behalf of the Trust

Other Powers:

☐ Other: [________________________________]
☐ Other: [________________________________]

Section 3.2 — Exercise of Powers

All powers shall be exercised by the Trust Protector in writing, delivered to the Trustee in accordance with Article XI. Pursuant to Tex. Prop. Code § 114.0031(b), if the Trust terms direct the Trustee to act in accordance with the direction of an advisor or protector, the Trustee shall comply with such direction.

Section 3.3 — Limitations on Powers

The Trust Protector shall NOT:

(a) Exercise any power for the personal benefit of the Trust Protector, except as expressly authorized in the Trust instrument;
(b) Make distributions to the Trust Protector or for the Trust Protector's benefit unless expressly authorized;
(c) Exercise any power in a manner that would cause inclusion of Trust assets in the Trust Protector's gross estate for federal estate tax purposes;
(d) Exercise any power in a manner that would be treated as a general power of appointment under I.R.C. § 2041 or § 2514;
(e) Use the power to remove and appoint trustees, advisors, or protectors to appoint the Trust Protector to such positions (per the non-fiduciary exception limitation in § 114.0031(f));
(f) Add the Trust Protector, the Trust Protector's creditors, the Trust Protector's estate, or the creditors of the Trust Protector's estate as beneficiaries of the Trust; or
(g) Exercise powers in a manner inconsistent with the Trust's stated purposes or the interests of the beneficiaries.

Section 3.4 — Trustee Liability Protection

Pursuant to Tex. Prop. Code § 114.0031(c), a Trustee who acts in accordance with the direction of the Trust Protector, as prescribed by the Trust terms, is not liable, except in cases of willful misconduct on the part of the Trustee so directed, for any loss resulting directly or indirectly from that act.

ARTICLE IV — STANDARD OF CONDUCT AND FIDUCIARY STATUS

Section 4.1 — Fiduciary Classification

Under Texas law, the fiduciary status of the Trust Protector depends on the nature of the powers exercised:

For Advisor-Type Powers (§ 114.0031(e)): An advisor (including a protector exercising advisor-type functions such as directing investment or distribution decisions) is a fiduciary regardless of trust terms to the contrary, except as provided in subsection (f).

Non-Fiduciary Exception (§ 114.0031(f)): The trust terms may provide that the Trust Protector acts in a non-fiduciary capacity if: (1) the Trust Protector's only power is to remove and appoint trustees, advisors, trust committee members, or other protectors; and (2) the Trust Protector does not exercise that power to appoint itself to any such position.

Select the applicable classification:

☐ Full Fiduciary Capacity: The Trust Protector exercises powers beyond the removal/appointment power described in § 114.0031(f) and therefore serves as a fiduciary under § 114.0031(e).

☐ Non-Fiduciary Capacity (Limited — § 114.0031(f)): The Trust Protector's sole power is to remove and appoint trustees, advisors, trust committee members, or other protectors, and the Trust Protector shall not exercise that power to appoint itself to any such position. Under these circumstances, the Trust Protector acts in a non-fiduciary capacity.

☐ Mixed Capacity: The Trust Protector exercises some powers in a fiduciary capacity (advisor-type powers) and the removal/appointment power in a non-fiduciary capacity under § 114.0031(f), to the extent applicable.

Section 4.2 — Standard of Care

The Trust Protector shall:

(a) Act in good faith and in accordance with the terms and purposes of the Trust;
(b) Act in the best interests of the beneficiaries;
(c) Exercise reasonable care, skill, and caution in performing duties hereunder;
(d) Avoid conflicts of interest; and
(e) Not engage in willful misconduct.

Section 4.3 — Information Rights

The Trustee shall provide the Trust Protector with information reasonably necessary for the Trust Protector to exercise any power of direction. The Trust Protector shall have the right to:

(a) Review Trust records, including accountings, tax returns, and investment reports;
(b) Request and receive information from the Trustee regarding Trust administration;
(c) Communicate with Trust beneficiaries regarding matters within the Trust Protector's authority; and
(d) Engage independent advisors at the Trust's expense, subject to reasonableness.

ARTICLE V — COMPENSATION

Section 5.1 — Compensation Amount

The Trust Protector shall be compensated as follows (select one):

☐ Fixed Annual Fee: $[____] per year, payable ☐ monthly ☐ quarterly ☐ annually
☐ Hourly Rate: $[____] per hour for time actually spent performing Trust Protector duties
☐ Percentage of Trust Assets: [____]% of the net fair market value of Trust assets, calculated as of [________________________________]
☐ Per-Action Fee: $[____] per formal action taken as Trust Protector
☐ Reasonable Compensation: Reasonable compensation as determined by the Trustee and Trust Protector, consistent with prevailing rates for similar services in Texas
☐ No Compensation: The Trust Protector shall serve without compensation
☐ Other: [________________________________]

Section 5.2 — Expense Reimbursement

The Trust Protector shall be entitled to reimbursement from the Trust for all reasonable and necessary expenses incurred in the performance of duties hereunder, including but not limited to legal fees, accounting fees, travel expenses, and costs of independent professional advisors.

Section 5.3 — Payment Source

All compensation and expense reimbursements shall be paid from Trust assets and shall constitute a proper Trust expense.

ARTICLE VI — LIABILITY AND INDEMNIFICATION

Section 6.1 — Limitation of Liability

(a) The Trust Protector shall not be personally liable for any action taken or omitted in good faith and in accordance with this Agreement and the Trust instrument;
(b) The Trust Protector shall not be liable for any loss to the Trust resulting from the Trustee's failure to comply with a proper direction;
(c) The Trust Protector shall be liable only for willful misconduct, gross negligence, or breach of the applicable fiduciary duty under § 114.0031(e); and
(d) Liability shall be limited to the Trust assets under administration.

Section 6.2 — Indemnification

The Trust shall indemnify, defend, and hold harmless the Trust Protector from and against all claims, liabilities, losses, damages, costs, and expenses (including reasonable attorney fees) arising out of or related to the Trust Protector's exercise or nonexercise of powers hereunder, except to the extent caused by the Trust Protector's willful misconduct or gross negligence. This indemnification shall:

(a) Be payable from Trust assets;
(b) Survive the termination of this Agreement;
(c) Survive the Trust Protector's resignation or removal; and
(d) Extend to the Trust Protector's heirs, executors, and personal representatives.

Section 6.3 — Exculpation

To the maximum extent permitted under Tex. Prop. Code § 114.0031 and applicable Texas law, the Trust Protector shall not be liable for any act or omission made in good faith, provided such act or omission does not constitute willful misconduct.

ARTICLE VII — SUCCESSION

Section 7.1 — Successor Trust Protector

In the event of the Trust Protector's death, incapacity, resignation, or removal, a successor Trust Protector shall be appointed by the following method (select one or more in order of priority):

☐ The Grantor (if living and competent) shall appoint a successor
☐ The outgoing Trust Protector shall designate a successor in writing
☐ The Trustee shall appoint a successor
☐ A majority-in-interest of the current income beneficiaries shall appoint a successor
☐ A designated third party: [________________________________] shall appoint a successor
☐ The appropriate Texas Statutory Probate Court or District Court shall appoint a successor upon petition
☐ Other method: [________________________________]

Section 7.2 — Qualifications of Successor

Any successor Trust Protector shall:

(a) Be a natural person over the age of [____] years or a corporate entity authorized to serve in a fiduciary capacity in Texas;
(b) Not be a beneficiary of the Trust, unless the Trust instrument expressly permits;
(c) Be a resident of the United States; and
(d) Possess the qualifications set forth in the Trust instrument, if any.

Section 7.3 — Interim Period

During any vacancy in the office of Trust Protector, the powers granted hereunder shall be suspended and the Trustee shall administer the Trust in accordance with its terms, exercising independent judgment on all matters that would otherwise require Trust Protector direction.

ARTICLE VIII — REPORTING AND COMMUNICATION

Section 8.1 — Notice of Actions

The Trust Protector shall provide written notice to the Trustee and to all beneficiaries entitled to notice under the Trust instrument within [____] days of exercising any power under Article III, unless the Trust instrument provides otherwise.

Section 8.2 — Annual Report

The Trust Protector shall provide an annual written summary of all actions taken or decisions made during the preceding calendar year to:

☐ The Grantor (if living)
☐ The Trustee
☐ All current income beneficiaries
☐ All qualified beneficiaries
☐ Other: [________________________________]

Section 8.3 — Records

The Trust Protector shall maintain records of all actions taken, decisions made, and communications with the Trustee and beneficiaries for a period of not less than [____] years.

ARTICLE IX — RESIGNATION AND REMOVAL

Section 9.1 — Resignation

The Trust Protector may resign by providing written notice to the Trustee and to all beneficiaries entitled to notice not less than [____] days prior to the effective date of resignation. The resignation shall be effective upon the earlier of:

(a) Appointment and acceptance by a successor Trust Protector; or
(b) Expiration of the notice period specified above.

Section 9.2 — Removal

The Trust Protector may be removed as follows (select all that apply):

☐ By the Grantor (if living and competent), with or without cause
☐ By a unanimous vote of all current income beneficiaries, for cause
☐ By a majority-in-interest of all qualified beneficiaries, for cause
☐ By order of a Texas Statutory Probate Court or District Court upon petition and finding of cause
☐ By a designated third party: [________________________________]
☐ Other: [________________________________]

Section 9.3 — Definition of Cause

For purposes of this Article, "cause" shall include: (a) breach of fiduciary duty; (b) incapacity; (c) failure to act when action is required; (d) conviction of a felony; (e) sustained substance abuse; (f) a material conflict of interest that cannot be waived; or (g) self-appointment to a position prohibited by § 114.0031(f).

ARTICLE X — DISPUTE RESOLUTION

Section 10.1 — Mediation

Any dispute arising under this Agreement or the Trust instrument relating to the Trust Protector's authority shall first be submitted to mediation before a qualified mediator in [________________________________] County, Texas. The costs of mediation shall be paid from Trust assets.

Section 10.2 — Judicial Resolution

If mediation fails to resolve the dispute within [____] days, any party may petition the Statutory Probate Court of [________________________________] County, Texas, or the appropriate District Court having jurisdiction over trust matters.

Section 10.3 — Arbitration (Optional)

☐ The parties agree that any dispute not resolved through mediation shall be submitted to binding arbitration in accordance with the rules of [________________________________], conducted in [________________________________], Texas. The arbitrator's decision shall be final and enforceable in any court of competent jurisdiction.

ARTICLE XI — GENERAL PROVISIONS

Section 11.1 — Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, including the Texas Trust Code (Tex. Prop. Code Title 9, Subtitle B) and Tex. Prop. Code § 114.0031, without regard to conflict of laws principles.

Section 11.2 — Texas Statutory Framework

Section 11.3 — Notices

All notices required or permitted under this Agreement shall be in writing and delivered to the addresses set forth in Article I by:

☐ Personal delivery
☐ Certified mail, return receipt requested
☐ Nationally recognized overnight courier
☐ Electronic mail (with confirmation of receipt) to:

• Grantor: [________________________________]
• Trustee: [________________________________]
• Trust Protector: [________________________________]

Section 11.4 — Severability

If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall continue in full force and effect.

Section 11.5 — Entire Agreement

This Agreement, together with the Trust instrument, constitutes the entire agreement among the parties with respect to the Trust Protector's appointment and authority. In the event of a conflict between this Agreement and the Trust instrument, the Trust instrument shall control.

Section 11.6 — Amendment

This Agreement may be amended only by a written instrument signed by all parties hereto, or by the Grantor alone if the Trust is revocable under Tex. Prop. Code § 112.051.

Section 11.7 — Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

ARTICLE XII — SIGNATURES

IN WITNESS WHEREOF, the parties have executed this Trust Protector Agreement as of the date first written above.

Grantor/Settlor

Signature: [________________________________]
Printed Name: [________________________________]
Date: [__/__/____]

Trustee

Signature: [________________________________]
Printed Name: [________________________________]
Title (if corporate trustee): [________________________________]
Date: [__/__/____]

Trust Protector

Signature: [________________________________]
Printed Name: [________________________________]
Date: [__/__/____]

ACKNOWLEDGMENT

STATE OF TEXAS
COUNTY OF [________________________________]

On [__/__/____], before me, the undersigned notary public, personally appeared [________________________________], [________________________________], and [________________________________], known to me (or proved to me on the basis of satisfactory evidence) to be the persons whose names are subscribed to this instrument, and acknowledged that they executed the same in their authorized capacities and that by their signatures on the instrument, the persons, or the entity upon behalf of which the persons acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public, State of Texas: [________________________________]
My Commission Expires: [__/__/____]

[NOTARIAL SEAL]

Sources and References

• Texas Property Code § 114.0031 (Directed Trusts; Advisors): https://statutes.capitol.texas.gov/Docs/PR/htm/PR.114.htm
• Texas Property Code § 114.0031 (FindLaw): https://codes.findlaw.com/tx/property-code/prop-sect-114-0031/
• Texas Property Code § 114.0031 (Justia): https://law.justia.com/codes/texas/property-code/title-9/subtitle-b/chapter-114/subchapter-a/section-114-0031/
• Texas Trust Code (Full Chapter 114): https://statutes.capitol.texas.gov/Docs/PR/htm/PR.114.htm#114.064