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If You Can't Beat 'Em, Join 'Em: UDTA and Directed Trust Statutes Come of Age

Over the last decade, trust law has evolved so the role of trustee can better reflect the open architecture that modern families desire. It’s now commonplace for trust settlors to design so-called “directed trusts,” and existing trusts are frequently transferred to new jurisdictions to be modified through the use of techniques such as decanting, non-judicial settlements agreements, consent modifications, court orders and trust mergers so they can become directed trusts. Known as the “directed trust model,” these trusts permit duties traditionally held by a trustee to be held instead by an advisor. A directed trust is a trust whose governing instrument includes provisions that allow for a separate fiduciary (or possibly a non-fiduciary) called an “advisor” to direct the trustee to exercise a variety of ministerial and discretionary responsibilities, such as investment decisions pertaining to all or a portion of the asset, distributions, tax reporting, transfer of trust situs, amendments to the trust instrument and how and when beneficiaries receive notice and information. The trustee exercises that trust power and authority only when directed by the advisor, thus bifurcating responsibility and action so the settlor can use different specialized advisors to administer the trust. Advisors and trustees can be removed and replaced without changing the other fiduciaries, enabling à la carte administration. As an added bonus, directed trusts often result in lower fiduciary fees because the directed trustee who’s been relieved of the responsibility and liability for making investment decisions will charge accordingly.

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Todd A.Flubacher and Cynthia D.M. Brown, "If You Can't Beat 'Em, Join 'Em: UDTA and Directed Trust Statutes Come of Age," Trusts & Estates Magazine (November 2018)

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