Directed Trusts
Directed Trusts – only codified and available in a handful of states across the country, including South Dakota – continue to drastically change the trust world through unbundling asset management and trust administration functions, putting control back into the hands of settlors, beneficiaries, and their advisors across the country and around the world. Through bifurcating liability, the directed trust model creates a legal framework allowing trustees and beneficiaries to work with asset managers and independent trust companies of their choosing.
“Offering unbundled services provides great flexibility and lower fees for families and their advisors.”
Watch the short video below from Bridgeford Trust Company for more information on how the directed trust concept works to empower settlors, beneficiaries, and their advisors while revolutionizing the trust and wealth management industry.
“Bundled” Trustee
Traditional bank trust departments and corporate trustees perform distinct services, including investment management and distribution, preparation of fiduciary accountings and trust tax returns, and administration of the trust in accordance with governing instruments and applicable state trust laws. All of these services are “bundled” together and provided under a fee structure that is typically based upon a percentage of assets under management. This approach is often rigid, inflexible, and requires settlors, co-trustees, and beneficiaries to work with asset managers that are employed by or are affiliated with the trust company. Under this approach, they are unable to work with an advisor of their choosing.
“Directed” Trustee
The directed trustee model unbundles these services, bifurcates liability, and distinguishes between the investment and administrative functions of asset management and trust administration. A directed trust statute (only 4 states in the nation have such statutes) formally defines the separate duties and responsibilities of the trustee and advisor (asset manager) and allows the grantor to appoint both as fiduciaries in a trust agreement. Therefore, the advisor is charged with and held responsible for all investment duties while the directed trustee is charged with and held responsible for all trust administration duties. The combined fee charged by both entities is comparable to and often lower than traditional “bundled” trustees.
Under a directed trust model, a grantor or co-trustee can work with the advisor they choose while the trust administrative function is performed by an independent trust company. This approach allows clients to work with long-time trusted advisors in conjunction with trust administration.
You can learn more about Directed Trusts and review the typical modern “directed” trust structure in this piece published by Bridgeford Trust Company that outlines the directed trust concept.
For more information on Directed Trusts, call (305) 347-5129 or contact us online.
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