The Complexities of Directed Trusts

For wealthy families, electing just a trustee and investment advisor is an outdated trust model.  These people are divvying traditional trustee duties in to different functions, selecting special experts and family members to fill as many different roles as needed in “directed trusts.”

The original purpose of a directed trust was to allow for a trustee to relinquish fiduciary responsibilities to third party advisors.  These trustees could aid in managing a concentrated stock position and diversify the trust by investing in other asset classes.  Yet, simply giving up control of the trust to employ outside advisors is not enough for today’s wealthier families as it is far more complex than simply choosing a trustee. 

These multifaceted trust structures can come at a cost.  Moreover, states have their own unique rules about how to deal with trusts that use multiple advisors.  Thus, before electing co-advisors, it is critical to do a state-by-state evaluation to avoid a costly tax bill.  Make sure that a directed trust will fit your needs.  Trust lawyers generally say that directed trusts start to make sense for folks with more than $10 million in assets. 

See Robert Milburn, Navigating Complicated “Directed Trusts”, Barron’s, Dec. 22, 2014. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.