Delegated or Directed Trust

Definitive Guide on a Delegated or Directed Trust

Delegated or Directed Trust – Everyone has confusion on the pros and cons of each.  Directed trusts are newish (e.g. last 30 years).  Delegated trusts have been around since the 1300’s.  From a trust administration perspective, the biggest difference between the two rests on the trustee level of risk. 

Delegated or Directed Trust – A Reasoning for Two options

Any trustee, if taking a fee and acting as a fiduciary, reviews their duties and obligations for two key issues: their risk and their time. Trust documents outline a trustee risks very well.  Around 30 years ago, several states such as Alaska, Delaware, Nevada, and South Dakota began adding more robust control and choice options to grantors.  These extra controls and choices can reduce the risk to a trustee.  A delegated or directed trust provides options which a grantor needs to consider around the philosophy of their wealth and family. 

Neither a delegated or directed trust feature(s) inside a trust document should be defined as good or bad.  This article describes the key differences affecting a trust, whether using a delegated or directed trust feature, and the impact on current and future generations.  The benefits of a Delegated or Directed Trust based on South Dakota trust law or any of the other top trust states allows those with money to worry even less because they have control and choice.  

Delegated or Directed Trust – The Distribution Differences in South Dakota 

South Dakota’s directed trust laws allow the trust administration duties of a trust to be split. Those sharing the various trustee duties: financial/investment advisors, distribution advisors, and/or administrative trustees.  An advisor can also take advantage of South Dakota directed trust laws under a delegated trust with some limitations such as not having a separate distribution advisor.  Moving or using South Dakota trust law gives everyone options. Who do you want to do what? Any top ranked trust state offers the same directed trust benefits. Which one wins in the battle of delegated vs directed trusts? For clients/beneficiary(s) wanting just to separate the investment management from the trustee than a delegated or directed trust offer the same result under South Dakota directed trust laws. The only difference rests on who has the investment fiduciary risk – advisor or trustee.

For larger trusts, roughly $50 million or more, extra menu options exist for a directed trust based on South Dakota trust law. This does not mean the decision rests on a delegated or a directed trust for families.  It comes down the bells and whistles they want for the legacy they want to leave behind.  For grantors/beneficiary(s) wanting a Distribution Committee and/or Trust Protector need to consider additional issues.

Distribution Committee for Directed Trusts

The decision on whether to use a delegated or directed trust rests on the amount of options the grantor wants to employ in the administration of the trust.  Distribution decisions almost become one of the largest decisions to consider when drafting a trust document. A trustee has the power to decide on the timing and reasons for trust distributions. The variations depend on how the trust document provides guidance on trust distributions. The standard trust language provides grantor intent around Health, Education, Maintenance and Support. The difference between Maintenance and Support distributions rests on a need or a want, respectively. If the grantor does not provide more guidance to any trustee in the trust document, the trustee must interpret the grantors intent around trust distributions. We have all heard horror stories about trustees being obstinate around trust distributions. Whether using an individual trustee, corporate trustee or a distribution committee the issues remain. Adding simple language around trust distributions such as “consistent with the beneficiaries current lifestyle” clarifies the grantors intent around trust distributions.

Whether a trust document falls under a delegated or directed trust does not change the complexities of trust distributions. Under a directed trust with a Distribution Committee the first issues arises who shall be on the committee – family members only or include a corporate trustee? The next decision requires the process of how Distribution Committee members, assuming only family members, are voted on or off the committee. Should it be age based? Responsibility based? Any other constraints or qualifications?  The issue of compensation for the Distribution Committee should clearly be defined.  The trust should also provide liability insurance for the Distribution Committee members should any beneficiary sue the Distribution Committee.  When voting on distributions the decision should perhaps not include how each member voted as this provides ammunition should the Distribution Committee be involved in a lawsuit. 

Depending the level of the Distribution Committee discretion around distributions decisions still must be based on the evaluation of the beneficiary’s current needs, future needs, and other sources of income. The Distribution Committee must also consider the size of the trust and other current beneficiaries and/or future beneficiaries. If those future beneficiaries are named, called remaindermen, then the distribution decisions become more complicated. The Distribution Committee must consider the current needs of the beneficiary(s) and the remaindermen. The remaindermen can sue the trustee for making bad distribution decisions to the current beneficiaries. Often the most important role of a trustee is the ability to say “no” and set limits on the use of the trust assets. This can be difficult when the need for current assistance is readily apparent.

A directed trust does not require to have a Distribution Committee.  That option depends on the amount of time and effort the grantor wants to expand during the drafting of the trust document.  Many directed trusts do use the Distribution Committee either because of the trust size or trust administration complexity creating a Distribution Committee. Choosing between a delegated or directed trust rests on more than do you want a Distribution Committee.  It should consider the philosophy of the family and the wealth.

Trust Committee on Distributions for Delegated Trusts

A corporate trustee has three main responsibilities to a trust:

1/ investment management;
2/ tax returns; and
3/ distributions.

Under a delegated trust a corporate trustee uses a trust committee to make distribution decisions for beneficiaries. The Board of Directors, or for larger corporate trustees a senior of group of executives, select the members of the trust committee. Larger corporate trustees have more than one trust committee based on the geographic location of beneficiaries or if the trust size warrants special attention. Smaller corporate trustees, like Wealth Advisors Trust Company, have one trust committee for consistency and efficiency of decisions. Trust committees meet weekly, bi-weekly and/or monthly depending on the work load. Trust committees review, approve or not approve all new accounting openings, annual trust reviews and make distribution decisions.

Under a delegated trust the trust committee looks at the trust document for the grantors intent. This can be vary vague. A standard trust document provides distribution guidance for Health, Education, Maintenance and Support reasons. Trust committees look at Maintenance and Support as a want and a need, respectively. If no other guidance exists in the trust document, the trustee committee looks at the beneficiaries:
a) personal and financial circumstance;
b) age;
c) size of the trust; and
d) if remaindermen should be considered.

A bank trust department does not have the natural and collaborative process if non-trust assets are owned by a beneficiary. This requires a lengthy and cumbersome process to collect the information and provide a distribution answer. For advisor friendly trust companies, the distribution process occurs in a natural and collaborative process. The trust officer communicates with the financial advisor on the overall financial plan of the beneficairy. This includes assets owned by the trust and owned separately by the beneficiary. Distribution decisions made by the trust committee in this manner are comprehensive, collaborative and efficient.

If the trust document provides more guidance on distributions there exists a point of diminishing returns. If the guidance provides very narrow distribution rules (e.g. must graduate from a university) then does someone who goes to a trade school or enters the military not qualify for distributions? Trust documents that add, “consider other resources”, or “in the style of their current income level” provide more intent and guidance to the trust committee. Choosing between a delegated or directed trust for distributions should consider the size of the trust and intent of the grantor.

Delegated or Directed Trusts for Trust Protectors

The trust protector provides extra guidance and clarification within a trust document. The philosophical reason for including a trust protector would not change for a delegated or directed trust. The position should be seen as “not a term of art.” Many state trust statutes do not clearly define this role. A Trust Protector has been in use for offshore trusts for decades. Within the last 30 years it has become a newer option for grantors.

The trust protector acts as an intermediary between the trustee and beneficiary(s) whether for a delegated or directed trust. Their purpose ensures the wishes of the grantor, person who established the trust, becomes a reality. The trust document outlines their duties. Their duties cover a wide range of duties. Simple examples fall under the removal/appointment of trustees and financial advisors. A trust protector can provide guidance around the grantor’s intent for trust distributions. It depends. One best practice for trust protector selection – not a direct relation to the grantor. The legal concept of “directly related” and the related definitions somewhat depend on trust state law. Your estate planning attorney can provide the definition in more detail. Grantor’s selection of the initial or successor trust protectors work perfectly. Many trust documents with a trust protector provide vague or no process how beneficiaries remove/appointment trust protectors.

States that have adopted the Uniform Trust Code (see Section 808 (b) to (d)) have use of a trust protector. There are many non-Uniform Trust States such Alaska, Delaware, Georgia, Illinois, Indiana, Nevada, Rhode Island, South Dakota, Texas and Washington that have permited the use of trust protectors. All grantors should ask their estate planning if a trust protector inclusion works even with a statutory provision in their state. Whether to use a Trust Protector within a delegated or directed trust depends on the potential time horizon of the trust and the desire to have an independent third party for guidance. Everyone needs to clearly decide whether the Trust Protector has a fiduciary or non-fiduciary role.

A trust protector “has been used much more recently as the person given the power to perform certain delineated non-administrative decisions relating to the trust but not otherwise inherently a part of a Trustee’s role. Most often the trust instrument provides that the trust protector is not acting as a fiduciary, because the powers given to the trust protector are not typically traditional trustee powers.” See Sherby, § 2.2, referring to Trust Advisors, 78 Harv. L. Rev. 1230 (1965).

Trust Protector for Directed Trusts

A directed trust removes certain powers or discretionary decisions from the trustee. Some of those powers or discretionary decisions can be allocated to a trust protector. The role defined in a directed trust for the trust protector can provide gaps of responsibleness. Their standard of conduct from which the trust protector will be judged rests in the trust document. The minimum standard of conduct falls under the “good faith” concept with considering the “best interest” for the beneficiary(s) and the goals outlined in the trust. Pretty vague. Generally, the concept of “willful misconduct” and other higher standards for the trust protector for the general estate planning attorney raises a challenge.

The legal issue raised most often for a trust protector centers on their fiduciary definition. Some of this falls under the trust document and the trust statutes. Alaska states a trust protector has not fiduciary oversight unless specifically provided for in the trust document. Delaware and Illinios state the trust protector has a fiduciary definition unless stated differently in the trust document. Under South Dakota Trust Protector Statute (SDCL Section 55-1B-6) provides a clear list (i.e. 18) of all the duties a trust protector could perform. Their role defined role as acting under a fiduciary capacity normally rests on their power to make investment and/or distribution decisions. However, the presumption under South Dakota considers the trust protector presumed to be a fiduciary.

A directed trust provides the greatest choices and controls for a grantor. Under a directed trust great care and detail must be allocated to the trust protector’s duties and powers. Providing a clear list removes the ambiguity that exists naturally in any trust document. The grantor and drafting attorney should consider some of the following when including a trust protector into a directed trust:
(1) Person(s) having power to remove and appoint;
(2) Clear list of duties to be performed;
(3) Upon death of trust protector the process to appoint new successor if not done prior to the death of the current trust protector;
(4) Fiduciary or non-fiduciary role; and
(5) Guidance or intent of character qualities of a successor trust protector.

The selection of the person and duties of a trust protector for a directed trust requires great thought under two basic issues: (a) The qualitative characteristics for a great trust protector; and (b) the potential existence of the trust and how the trust protector could change over time.  Families should not be overly focused on whether a delegated or directed trust uses a trust protector.  Rather, they should consider the choices and control they want to extend to current and future generations.

Trust Protector for Delegated Trusts

The effect of a trust protector on a delegated trust can mirror that offered via a directed trust. The major issue are the duties specifically allocated to the trustee such as investment and distribution authority.

Any trust document states the governing law and interpretation used for trustees when fulfilling their fiduciary duties. Well written trust documents allow someone, normally the trustee, to change the governing law and situs of the trust for administrative and interpretative purposes. The first decision any grantor should consider are the current trust statutes for their trust. A Texas resident wanting a trust protector for their gifting trust would need to confirm how Texas trust statutes define this role. The drafting of trust protector provisions become additionally tricky if the attorney does not consider all the issues. It is critical that form documents or form provisions for a trust protector are reviewed with great care under a delegated trust. The grantor and drafting attorney need to consider the following:
(a) Outline of powers;
(b) Removal/appointment processes; and
(c) Effect of governing law and situs change for trust.

Items (a) and (b) are straightforward. Item (c) becomes more nuanced. If trust protector removes the Texas trustee and appoints a South Dakota trustee how should the trust document language reflect the trust protector duties and liabilities? The trustee should have the power to change the governing law and situs for administration and interpretation. The original drafting attorney should consider the potential for governing law changes. The concept of keeping the fiduciary or non-fiduciary definition the same under new trust statutes are a normal process for any attorney.

The key issue for a delegated trust using a trust protector centers on the grantors intent. For example, where there are imperfect or ambiguous trust sections, the grantor intent was for the trust protector to provide clarity or guidance to resolve these issues. Think of a trust protector as a referee where the different parties involved – trustee, and beneficiary – need guidance on clarify issues.

Delegated or Directed Trusts – the Investment Management Difference

For a delegated or directed trust it comes down to who has the legal risk. The challenge for any trustee rests on knowing the overall purpose of the trust fund. Trustees spend important time understanding the needs of the trust fund beneficiaries. The challenge becomes when trust documents provide vague or no guidance around the priority of beneficiaries and their distributions. The trust investment management becomes paramont for the distributions to occur as intended.

A delegated or directed trust choice for investment management has evolved over the last 189 years. A landmark trust law case in 1830, Harvard College vs. Francis Amory, established the concept of Prudent Man Rule. Judge Samuel Putnam stated:

“All that can be required of a trustee to invest, is, that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”

The Prudent Man Rule remained enforce for 150 years. By the mid-1980’s it became apparent trustee investment management needed to have a more global overview. In 1992 the Uniform Prudent Investor Act was adopted by the American Law Institute’s Third Restatement of the Law of Trusts. This concept allowed for the implementation of  modern portfolio theory or total return for trustee investment management.  This allows the trustee, whether through a delegated or directed trust, to consider the entire trust investment portfolio for balancing risk and return.

Investment Management for Directed Trusts

The concept of a delegated or directed trust for investment management starts with the goal of the grantor. The largest problem for any trustee – ambiguity in a trust document. One of the largest sources of ambiguity in a trust document – who has the fiduciary investment responsibility. A directed trust provides clear power of direction from the grantor.  It can separate the fiduciary duties held by various parties within trust administration. Every financial advisor needs to know – under a directed trust – you have 100% of the investment fiduciary risk. The trustee has 0%. This assumes the trust document clearly states the role of each party. This also assumes the trust document clearly states the trustee has no fiduciary oversight of the trust investments.  The financial advisor in a directed trust will state they have all the responsibility fiduciary risk for implementation and review.  Remember, lower trustee risk must equal lower trustee fee.

The 44 states enacting direct trust statutes do not carry the same separation of duties. The risks allocated to the trustee or the investment trustee, known also as the financial advisor, cover a wide range of implementation and interpretation.
Some states follow the Uniform Trust Code (see section 808) for directed trust guidance.

In 2017, the Uniform Law Commission, kinda funny something like this exists, created the Uniform Directed Trust Act. The motivation for this Act came from the confusion found in the Section 808 of the Uniform Trust Code. A few seminal trust law cases exist around directed trusts and investment management. Duemler v. Wilmington Trust Co. upheld the liability protection for the directed trustee, the corporate trustee, when acting under the power and guidance of a third party financial advisor. In order for the lower trustee fees under a directed trust, the drafting must leave no doubt in the clear separation of roles and responsibilities for trust investment management.

The states with the strongest direct trust statutes – Alaska, Delaware, Nevada and South Dakota – provide clear direction. The corporate trustees in those states do not require that the investment trust assets custodied or trades executed with them. There are other states, such as Texas, where corporate trustees offer directed trust services for investment management but require custody and transactions done through their custodial platform. Defeats the whole purpose. If you want a separation of trust investment management under directed trust statutes then go with the leaders. Lower price. Less hassle. Your choice.

Investment Management for Delegated Trusts

Traditionally the corporate trustee offers investment management for a trust. The American Law Institute (“ALI”) provides a few useful functions. A key function rests on challenging common trust law assumptions and potentially adding them into the Uniform Trust Code. Back in 1990, the ALI issued the Third Restatement of the Law of Trusts called the Third Restatement. An interesting addition to the Third Restatement was rejecting the notion that corporate trustees cannot delegate investment management. Technically, this means a corporate trustee, offering investment management, should consider firing itself for “bad” trust investment management.

The majority of trust documents fall under a delegated trust definition. It allows a trustee to delegate some duty to a third party. Such as tax returns, valuations and/or investment management. Families or individuals, deciding on a delegated or directed trust, are not pigeon holed to choose one or the other regarding investment management. Under the administration duties of the trustee, normally in the middle of a trust document, language should state that the trustee can delegate to others for investment management.

The delegation of the trust investment management becomes a fiduciary action by the trustee. The standard of care rests on the trustee and the third party financial advisor performing the investment management for the trust. They share the same fiduciary investment management risk. The trustee duty rests on supervising and monitoring the agent exercising the investment management delegation. The financial advisor duty rests on following the Prudent Investor Rule in the investment management of the trust assets. The trustee’s duty either to approve the trust’s investment strategy (e.g. Investment Policy Statement or a Know Your Client statement) or the decisions on who has the correct care and skill to exercise the investment management become paramount.

A rather tricky situation arises when a trust owns non-marketable securities. These could be hedge funds, partnerships, oil/gas properties, business assets, real estate etc. The risk to the trustee delegating the investment management becomes very real as the requirement to verify the ability of the financial advisor on those topics become very difficult. Should the beneficiary sue the trustee and the financial advisor for poor performance the largest risks will land on the trustees shoulders. They made the active decision to delegate the investment management to a third party. Therefore they carry the largest risk. Trustee fees for delegated trusts are always higher than for directed trusts.

Delegated or Directed Trusts effect on the Administrative Trustee

An administrative trustee acts generally as agent to the trustee.  In this case the trustee would be an individual.   However, the situation also exists where administrative trustee services can exist under a directed trust. Whether to choose a delegated or direct trust for administrative trustee duties rests on the goals of the grantor. 

The choice of using an administrative trustee under an individual trustee or a directed trust situation will be depend on the following high level issues: 

a) Type of assets and their complexity owned by the trust;

b) The expected duration of the trust; and

c) The level of trustee responsibility around distributions and/or investments.

As with all decisions the issue becomes on the goal the grantor(s) want to achieve currently and into the future.

Administrative Trustee for Directed Trusts

The role of the trustee in a directed trust follows a very simple process.  The largest issues to define center around whether the trust document has separated investment and/or distribution provisions from the trustee.  We remember that trustees only focus rest on their risk and time.  

If the directed trust states the investment functions and related fiduciary oversight of the trustee have been removed then the trustee has no obligation to review any assets or transactions within the trust.  There has not been clear case law around the issue of if a trustee performs only cursory investment oversight does this bring the fiduciary risks back onto the trustee duties.  It would be safe to assume the answer equals yes.  Beneficiaries when working with their estate planning attorneys might not be aware of the complete lack of trustee oversight and fiduciary responsibility.  The trust document states these facts but exist within a very large trust document.  Large means more than 50 pages and short means 15 to 30 pages. 

When taking over a directed trust the best practice for trustees include informing the financial advisor of their 100% fiduciary oversight.  Many participants in this arena have not shared similar opinions.  The question centers on does a financial advisor have 100% fiduciary oversight within a directed trust if the trustee, while performing their administrative duties, do not inform the financial advisor of this fact.  Whew that was a mouthful.  Bottom line we believe financial advisors need to be informed. 

If the trust document additionally creates a distribution committee the duties of the trustee becomes more of a record keeper position.  This involves creating at least quarterly the principal and income accounting statements and providing the CPA with tax files to prepare the 1041 tax return and subsequent K1s for each trust beneficiary.  The trustee fee under these circumstances would be very tightly priced since the trustee’s risk around discretionary or non-discretionary distributions drops to a small amount.  Again, it all depends on the trust document specific language of removing the trustee’s fiduciary oversight and involvement.

Administrative Trustee for Delegated Trusts

An administrative trustee under a delegated trust is called agency trustee servicesThis situation defines an individual as the trustee with the power to delegate or to implement themselves all investment and distribution decisions.  The use of an administrative trustee falls under providing principal and income accounting.  The agent to the trustee, the corporate trustee in this situation, has no power or authority.  They also do not have any fiduciary liability.  They are merely providing trust accounting, providing reports to the CPA for preparation of trust tax returns and/or tax planning for the trust itself.

The choice for using administrative trustee under a delegated trust starts with the decision of using an individual trustee. The grantor needs to consider the pros/cons of using an individual trustee. There needs to be clear trust language for the removal and appointment of the individual trustee. Language should also exist on providing quarterly trust accounting statements to the primary beneficiaries.

Delegated or Directed Trusts effect on Decanting or Modification of Trusts

Decanting or modification of trust starts with the eventual or current situs of the trust.  To reap the benefits of a top trust law state jurisdiction starts with changing the situs and administration of the trust.  This becomes incredibly important for old or original trusts. New trusts using the benefits of a top trust law state jurisdiction will already have the situs and administration tied to those states. 

Decanting allows for current trust assets to fall under a new trust document.  Older delegated trusts allow for this to occur naturally.  Under South Dakota trust law statutes for decanting rules, a trustee must have the power or authorization “to distribute income or principal” to begin the decanting process.  

Modification allows for current trusts to receive a type of “spring cleaning” of sorts to outdated, confusing, or badly worded trust administrative issues.  This process can occur for irrevocable and revocable trusts.  Many practitioners do not realize that irrevocable trusts can be decanted or modified.  The largest almost no go zone for either of these two strategies involve changing beneficiaries or altering the beneficiary distributions type, size and frequency.    

 The effect on a delegated or directed trust around a decanting or modification becomes the more relevant factor.  The descriptions below consider how a grantor/settlor, beneficiary and/or estate planning attorney should consider the overarching goals for the interested parties. As with all elements of the law, “it depends” rules the day on whether a simple modification gets the job done or if decanting provides a stronger result.

Decanting Reasons

If a beneficiary and/or grantor want to decant a trust something most be really not working.  Trust documents follow state trust law.  The more vibrant the state trust law the more options a beneficiary and/or grantor have around making changes to a trust.  The first step requires changing the trust situs and administration provisions to a top trust law state jurisdiction like Delaware, Nevada or South Dakota.  Whether the trust originally exists as a delegated or directed trust becomes only relevant after the decanting has occurred and the changes are considered.  The list  below covers a range of issues which decanting a trust can solve:

  • General trust administration provisions
  • Adding or removing grantor trust provisions (not happening if grantor has passed away)
  • Increasing estate planning strategies around powers of appointment (people need to remember they have these powers and discuss with their estate planning attorney or financial advisor every 5 years or so)
  • Opportunity to save taxes on state income/capital gains (lots of very specific rules on this one which some states will look to attack even if done correctly)
  • Dealing successor trustee definitions, removal and appointment provisions
  • Removing ambiguity from the original trust

The effect on decanting for a delegated trust has the greatest effect.  The majority of trusts today exist under delegated trust provisions.  The reason rests that directed trust laws until the mid 1980’s did not even exist.  Even today estate planning attorneys, generally, do not venture to using trust law outside of their jurisdiction.  I am guessing on two reasons: 1) They do not want to practice law in a state they are not licensed (very smart); and 2) They do not want to deal with the complexities of learning the advantages of a top trust law state jurisdiction (sadly occurs often).  Trust documents should always balance between control and choice for all parties involved against the various family and tax goals desired by the grantor.  A hard balance indeed.   

Modification Reasons 

Let’s face it estate planning attorneys deal with obfuscation when drafting trust documents.  Sometimes clients do not clearly lay out their intent and wishes.  Or even worse do not read the trust document and/or will when drafted.  Clients do not focus on distributions, investments, control from the grave issues, changing societal norms, and the philosophy of their money and family.  I will say it does occur that estate planning attorneys do not always ask the right open-ended questions or become bad communicators on very complex topics.  The bottom line exists that sometimes old trusts need a “spring cleaning.”  

Modifications for a delegated or directed trust have the same result.  It occurs in the majority of cases with a delegated trust.  These trusts rest on old assumptions, little flexibility or approaches to estate planning or family planning around investments and distributions.  Just the natural order of things.  A word about flexibility and trust documents.  Clients do not know the full extent of their options within a trust document.  Traditional trust bank companies have done a solid job of implementing a forced employment structure within the trust document (e.g. lack of removal, vague distribution guidance etc.).  Directed trusts based on a top trust law state jurisdiction already have the flexibility around control and choice demanded by grantors.

To modify a trust a trustee, beneficiary ( all of them including minors via an attorney ad litem process) or grantor (if still alive) all need to sign off.  The modification needs to consider the intent of the trust.  In situations where the intent of the trust and modifications to the trust run in opposite directions the process becomes very difficult to solve.  The majority of states (around 2/3 currently) have adopted the Uniform Trust Code dealing with modifications (see Section 411(a)).  Modification requires court involvement.  Most courts focus on the rule of law which occurs naturally in large metropolitan areas.  There exists, thankfully not often, a different issue when dealing rural towns, rural bank trust companies and the court system.  This can also be described as being “small-towned”.  It happens.  Just a way of life.  If you are a beneficiary of trust that must be modified in a court falling in a rural area be prepared for a challenge.  

The reasons for modifying a delegated or directed trust follow similar thought patterns.

How to Choose between a Delegated or Directed Trust?

In a word – complexity or simplicity. 

Do you want all the bells and whistles around investment management, distributions, trust protector, decanting, and administration provisions? Then choose a directed trust with all the complexity of drafting the trust document.  Be ready for a large legal bill from your estate attorney in your state and one from the attorney in a top trust law state jurisdiction.  It does not have to be complex but the tendency for those using a directed trust seem influenced or just trip into the complexity.  They all forget that all that complexity yields trust administration rules that require strict adherence.  If those rules should not be followed exactly then the goals of the directed trust begin to unravel. 

Do you want the basics in your will and revocable trust leaving the door open to control and choice changes during or after your lifetime? Then a delegated trust comes more appropriate.  They key to a delegated trust centers on the power of someone, trust protector and/or beneficiary, to remove and to appoint trustees with or without cause and not needing a court/judge involvement.  Actually, add this also – the power of the trustee to change the situs and administration of the trust.  No need to name some future great trust law state (freaks out estate planning attorneys) and makes someones life more complicated if that state is not awesome at some point.  

Bottom line the choice between a delegated or directed trust rests on the philosophy of family and money and how complicated you want that to be within a trust document.  


 

 

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