By Jeffrey B. Kadavy and Dylan H Metzner, originally published in Colorado Lawyer.
Estate planners are familiar with creating trusts to prudently manage and safeguard their clients’ wealth. Clients generally understand the benefits of a trust as a tool for achieving a host of planning goals. But many clients are averse to the idea of hiring a professional, non-family member trustee to manage their wealth, even though a professional may better serve their needs. In addition, attorneys often fail to advise their clients about the risks of appointing a non-professional trustee. Such risks include a trustee who steals from the trust, a trustee who fails to exercise independent discretion (and thus subjects the trust to estate or generation skipping transfer tax inclusion), and litigation initiated by beneficiaries who simply don’t like the family member trustee.
A directed trust allows trust settlors to involve family members in the administration of a trust when appropriate, but to use professionals to ensure compliance with fiduciary duties, provide professional investment management, deal with contentious beneficiary relationships, manage complex assets, and provide independent judgment with respect to discretionary distribution decisions.
This article explains directed trusts and discusses how directed trusts differ from other common trust structures; when to use a directed trust in an estate plan; how directed trusts operate under the Colorado Uniform Directed Trust Act (CUDTA or the Act); drafting and practical considerations; and advising fiduciaries serving under a directed trust.
In a directed trust arrangement, the powers and fiduciary duties ordinarily vested in a trustee or equally among co-trustees are allocated to one or more ‘trust directors’ and one or more ‘directed trustees.’
Download the article, as originally featured in Colorado Lawyer.
Estate Planning with Directed Trusts.Nov-2019.Trust and Estate Law