Article: Law Firms as Trust Directors

The practice of permitting a third party, other than a settlor or a trustee,
to give guidance to the trustee over some aspect of trust management
reflects the trend of granting settlors increasing control over their transfers
of wealth. In decades past, a few states enacted legislation permitting
what is known as directed trusts, but in 2017, the Uniform Directed Trust
Act was promulgated, seeking to provide a modicum of uniformity among
the states, as wealth is now increasingly both interstate and international.
Using the Uniform Directed Trust Act as a template, this Article discusses
issues pertinent to directed trusts, such as the relative power of the parties
involved, their responsibilities to all parties, and the fiduciary duties owed
and to whom.
But the focus of this Article is to discuss the benefits derived from
choosing a law firm as the person to give direction, the trust director in
a directed trust. Such an arrangement may bolster a law firm’s profitability,
building upon an existing fiduciary relationship, while mindful of situs,
drafting of the pertinent trust provisions, and considerations relevant to the
powers a law firm may use advantageously. Working in tandem with a corporate
wealth manager as the trustee, the law firm, as an entity better known
to the settlor, is better positioned to perform administrative tasks associated
with investment decisions, distributions to beneficiaries, and modification
of the initial trust purpose.