Henry Rohlf set up Delaware domestic asset protection trust but named his creditor, a bank, as his trustee. When bank needed payment on its note with Rohlf, it dipped into the trust assets. The way trust was written, it could not prevent trustee from taking money to pay debt owed to trustee.
First, and although it would seem obvious, never make a creditor or even a potential creditor the trustee of your trust. While this is an extreme case, I see cases all the time where yesterday’s trusted spouse is today’s hated ex-spouse, or where trusted friend is now hated enemy. And don’t believe that the “Chinese Walls” between say, a bank and a trust company that are owned by the same holding company, will protect you.
Second, use trust protectors. Here, if Rohlf or another person friendly to Rohlf was the trust protector, BNY Mellon could have been terminated as a trustee before it reached its hand into the cookie jar. I usually recommend the appointment of protectors (i.e., someone who has the power to fire the trustee) for even the most simple trusts.
This is good advise. We recommend trust advisors in almost all of our trusts. We usually name our law firm. This gives us the authority to fire and replace a trustee who is doing a bad job. Its part of the comprehensive long term relationship we establish with our clients to make sure their planning works when it needs to work.