Directed trust statutes separates who manages the trust assets and who administers the trust assets. This rule gives everyone loads of flexibility for anyone using a trust under South Dakota trust laws. Not every state offers directed trust law. It allows a person to place her property—both investment and business assets—in trust for heirs as income producing property. This process involves directing the control of the management of trust assets to third party such as a financial advisor, family member or family office but not the corporate trustee. A South Dakota Directed Trust is unique because it allows a ‘donor’ (trust geek speak - grantor) to use a decide who will manage, preserve, enhance, and accrue value for all sorts of property placed in a trust. These assets can include more than stocks, bonds, mutual funds—ranches, mom and pop shops, apartment complexes, valuable artwork, or even jewelry. <
South Dakota’s Directed Trust laws allow grantors to split-up the fiduciary responsibilities and duties that normally tag along with financial investments. A complex situation traditional and unique assets would have a financial advisor managing/overseeing the marketable securities and a hospitality specialist to manage the day-to-day operations of your fast food franchises. The corporate trustee would only focus on the trust accounting and administration. This also typically results in lower fees because the primary wealth advisor and all parties involved are responsible for fewer burdens.
Directed Trusts’ Framework
A directed trust is an excellent tool for discerning grantors because it allows a more hands-on approach to your legacy. South Dakota’s Directed Trust laws were enacted in 1997 and improved upon on Delaware’s directed trust laws. The flexible and adaptive trust laws allow for the grantor to outline their wishes in a trust directive for their long-term goals. The grantor can use the directed trust document to appoint a specific person as investment advisor, delegate appointment powers, and allow the appointment of a trust management committee.
There are two types of directed trust statutes: (1) those states following the Uniform Trust Code of directed trust statutes with a fixed-menu type (i.e., DE); and (2) those states following non-UTC directed trust statutes that are a-la-carte. States that have adopted the Uniform Directed Trust Act are not the states with leading trust situs and laws.
All of these options are the most beneficial uses of a South Dakota Directed Trust.
Under a directed trust statute the issue remains around on who has the fiduciary duty under investments and/or distributions. The UTC states like DE and TX follow the power rather than the duty which SD and NV use. The issue raise on "willful misconduct" becomes very important when the fiduciary duty has been breached in a directed trust. A corporate trustee has the duty to share information if another party, investment trustee, trust protector etc. not acting in a proper fiduciary duty. SD see this as an administrative duty of the corporate trustee with no fiduciary oversight implied, per SD directed trust statutes, and DE states the trustee and investment trustees have an affirmative duty to share information. The action is the same and effects the same as shown in common law cases.
The reasons the affluent and wealthy circle the South Dakota’s Directed Trust laws like buzzards around a buffalo on the Plains is because of the state’s pro-wealth growth laws. The South Dakota Directed Trust laws allow the fiduciary duties to be split between an investment committee, distribution committee, and an administrative committee. Added protection can be in the form of a trust protector who can remove or replace trustees or administrators, change the situs (location), and even terminate a trust. These wide-ranging grantor powers allow worldwide experts to manage your wealth. With tax and trust friendly laws, South Dakota’s Directed trust laws give you flexibility and control.
Prudent Investor Rule
The risk exposure allowed against for a client's wealth requires the risk to what a reasonable person would place against his investment. Simply put, a wealth advisor is bound by the Prudent Investor Rule to allocate risk in a balanced way. This rule requires advisors to treat their clients money with the same respect the investor would treat his own investments. South Dakota’s Prudent Investor Rule is firmly pro-client and growth friendly. Because of this, South Dakota’s Directed Trust laws are the leading directed trust laws in the nation.
South Dakota’s Direct Trust laws lure international clients and homegrown millionaires alike. The directing power becomes increasingly important because the Prudent Investor Rule applies to all South Dakota Directed Trusts. This delegation of directed trusts creates a powerful role for the grantor to dissect the powers of trust management among different people. This separation of powers works to preserve, grow, and enhance one’s wealth effectively and collaboratively.
The Financial Advisor’s Perspective
With ample legal safeguards, South Dakota’s Directed Trust laws have created a Switzerland-esque atmosphere. With nearly $1 trillion of foreign investments, the long-term investment friendly trust and tax laws of the United States uphold the policies of South Dakota’s Directed Trust laws. A South Dakota Directed Trust gives financial advisors a greater tool set to advise clients ensuring the philosophy of the client’s wealth and their family matches. More importantly, this trust structure allows professionals in unique fields of expertise to be involved in the management of client assets to grow and capitalize the wealth to the beneficiaries’ benefit.
Globally and nationally financial advisors recognize the protections and benefits of a South Dakota Directed Trust as one of the many ways to diversify risk, customize investments portfolios, and most importantly, utilize the benefits of a diverse group of investment experts. Ranked among the top situs’ by Trust & Estate’s magazine, South Dakota’s Directed Trusts laws attract both international and simply discerning clients seeking flexibility and control between their accumulated wealth and heirs.
Estate planning lawyers argue which type of directed trust statutes are better - the South Dakota trust law version or the Delaware trust law version. Typically, the east lawyers use DE and the rest of the country enjoy using the directed trust statutes of South Dakota, Nevada, Tennessee, and Alaska.
Lawyers focus on what is the definition of a non-fiduciary. This concept is critical under a directed trust statute. The trustee needs to know what liability they have and a non-fiduciary want to ensure they have no liability. An example of someone with a non-fiduciary role would be a trust protector under a directed trust. The DE model provides very clear definitions of what a non-fiduciary role entails. Sounds good. Except, the law is based on flexibility. The SD model offers flexibility to the trust documents found under the South Dakota directed trust statutes giving the estate attorney and their clients the freedom to define non-fiduciary roles customized to the situation.
The need for a directed trust is often misunderstood. Perhaps the trust’s creation is to avoid double taxation or to provide support and enabling trust distributions. Or, maybe the long term goal is to uphold the family honor and continue the legacy of a business that is as intertwined with the family legacy as much as one’s ambitions. Whatever the goal may be, a South Dakota Directed Trust allows for the ultimate client benefit. Wealthy families are quickly realizing the impact and importance of South Dakota’s Directed Trust laws.
Ultimately a South Dakota Directed Trust is right for families who want the family business, legacy, and fortunes, to continue after their death. Everyone dies. As unseemly as it is, facing that and talking with your children about what you’re leaving for them are two of the first steps before you even consider a South Dakota Directed Trust. The benefits of a directed trust tend to outweigh the risks and concerns of grantors. A South Dakota Directed Trusts allows the grantor much more control over their legacy. With the ability to split-up the responsibilities tied to the laggard trust laws of most states, a South Dakota Directed Trust exceeds the expectations of rival states and allows for the joining of experts’ minds to manage and grow clients wealth.
DE and other states following the directed trust statutes under the Uniform Directed Trust Act believe that having a checklist makes drafted directed trusts simpler and clearer. The counter argument states that these checklists can create confusing administrative provisions of exactly who is a fiduciary and responsibility for what under a trust situations customized situations. I believe the Uniform Directed Trust Act treats lawyers as idiots incapable of drafting well guiding directed trust documents.
A directed trust allows a grantor to continue her business through the counsel of other learned professionals. This legal device has global implications. The ability of South Dakota Direct Trusts to divide the responsibility of estate management is globally recognized as the leader among wealth friendly situses (locations). This trust and tax friendly location has potentially big results for a clients wealth. Still, the possibilities for the heirs’ future vastly outnumbers the common concerns of delegating the control of your wealth to a third party professional.