States Compete in Adopting Laws to Attract More Trust Business

This entry is based on Nora Lockwood Tooher’s article entitled Family Trusts Branch Out, Law. USA, Sept. 10, 2007.

As trusts are becoming increasingly complex, more persons with diverse skills and expertise are needed to manage them. For instance, it is useful to utilize corporate trustee’s investment skills while having a relative who is familiar with family affairs be in charge of asset distribution.

While the practice of appointing multiple trustees is appealing, it may also expose a trustee to liability for other trust agent’s actions. Thus in order to draw more trust business, many states have adopted laws that exempt trustees from liability in certain circumstances. For example, South Dakota and Delaware’s “directed trust” statutes exempt from liability a trustee who follows an adviser’s instructions in making investment and distribution decisions. Another incentive that some states have to offer to prospective settlors is the eradication of the rule against perpetuities.

In light of the new and alluring trust legislation, trust attorneys may decide that it is best to set up their clients’ trusts outside of their home states in order to take advantage of certain beneficial statutory trust provisions.