Directed Trusts in Estate Planning: New State Law Changes, Critical Structuring Issues, Advising Fiduciaries

Description

Directed trusts are being utilized with increased frequency and provide the opportunity to split trust functions between a trustee and one or more “trust directors". An increased number of states have enacted a version of the Uniform Directed Trust Act (UDTA) since 2018, and trusts and estates attorneys must recognize critical issues regarding the fiduciary status of non-trustees and pitfalls to avoid in structuring directed trusts.

A directed trust allows trust settlors to involve family members in the administration of a trust when appropriate but to use professionals to ensure compliance with fiduciary duties, provide professional investment management, deal with contentious beneficiary relationships, manage complex assets, and provide independent judgment concerning discretionary distribution decisions.

While most states have statutes authorizing directed trusts, there is significant uncertainty as to the fiduciary status of trust directors and the extent of fiduciary liability exposure for directed trustees. The passage of the UDTA and its adoption by several states provide clarity and standardize the fiduciary treatment and rules governing trust directors. The UDTA also offers drafting guidance on issues often overlooked in structuring directed trusts. Estate counsel should have a thorough understanding of these rules for directed trusts to provide greater flexibility for grantors.

Listen as our authoritative panel discusses the benefits of directed trusts as an estate planning strategy, explains critical considerations in determining when a directed trust is appropriate, highlights issues when converting existing trusts to directed trusts, outlines how to avoid unintentional fiduciary classifications, and provides guidance in navigating state law challenges.