Directed trusts allow the trust creator (grantor) to separate trustee powers by assigning responsibility for managing some or all of the trust assets to parties other than the trustee. In traditional trusts under common law, the trustee would manage all trust assets and distribute them to beneficiaries. However, modern directed trusts can divide these duties. For instance, individuals may want a specific advisor or family member to manage unique assets, such as shares of a family business, using a directed trust while the trustee retains other responsibilities.

Directed trusts distribute the following responsibilities among various parties to limit trustee risk and allow independent investment management:

• Investment responsibilities: If a trust is “directed” for investments, an investment committee, trust investment advisor, or trust protector named in the trust document selects external investment advisors and managers to direct the trust’s investment. The trustee is not responsible for monitoring the performance of these external investment managers.
• Distribution responsibilities: If the trust is “Directed” for distributions, a distribution committee, trust distribution advisor, or trust protector named in the trust document directs the trustee when distributions are to be made, usually through a “Letter of Direction,” regarding to whom and how much should be distributed.
• Administrative responsibilities: The directed trustee manages contributions, follows directions regarding distributions, manages tax returns, maintains trust records, provides any required accounting to beneficiaries, and other regular administrative functions, acting upon the direction of the investment and distribution advisors.

It is essential to define the trust advisor’s role for each set of responsibilities in the trust document and the grantor’s intentions in these cases, as the advisor’s role may not be subject to the common law and fiduciary rules that govern the directed trustee. States like Alaska, Nevada, and Delaware have established statutes that specify clear guidelines around the relationship and responsibilities of trust advisors and trustees of directed trusts.

Separated Trustee Roles
Similar to directed trusts, some trusts can bifurcate or trifurcate the trustee’s duties between multiple trustees, assigning specific responsibilities to each trustee in the trust document. Under a separated trustee structure, each trustee will be a fiduciary position, and conversely, each trustee will be responsible (and liable) only for actions within the scope of their specific trustee role and responsibilities.

A trust where trustee duties are “separated” (bifurcated or trifurcated) assigns the following duties to a combination of various trustee roles:

• Investment Trustee: This trustee has the responsibility to make day-to-day decisions regarding the investment and management of trust assets.
• Distribution Trustee: This trustee has the authority to make distributions to or for the benefit of the beneficiaries. For irrevocable trusts, where creditor protection or tax planning are critical goals, it may be necessary for this position to be held by someone other than the grantor or beneficiary.
• Administrative Trustee: This trustee holds the duties that are required by law to ensure that the trust qualifies for the desired governing law or situs. The exact requirements vary between jurisdictions, but often include: maintaining some assets in the state, maintaining some of the trust records in the state, filing or arranging for the filing of tax returns for the trust, and providing for a portion of the administration to occur in the state.

Note: The information provided here is for general educational and informational purposes only. It is not legal advice and should not be interpreted as such. For a thorough understanding of these topics relevant to your specific circumstances, we recommend consulting a qualified estate planning attorney. Peak Trust Company cannot provide legal advice; however, we can serve as an informational resource and provide referrals to highly skilled attorneys who can offer legal and tax guidance tailored to your specific needs.