In a traditional trust, the trustee is the ultimate authority and will be held accountable for any misconduct or other fiduciary violations. However, when a director has been appointed to the trust then the ultimate responsibility is harder to determine. The Uniform Trust Code, for example, absolves the trustee of any liability unless the director’s order is clearly out of line with the trust terms or seriously breaches a fiduciary duty. In addition, the director, as long as they are not a beneficiary, is presumed to be a co-fiduciary and will be liable for any breach. Ultimately, one must look to an individual state’s law to determine what the duties and liabilities of a director might be. Each state has a unique take on a director’s liability compared to that of a trustee and will control the issue in the event of conflict.
SeeCharles A. Redd, Tips From the Pros: Directed Trusts—Who’s Responsible?, Wealth Management, August 27, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.
