In a standard trust, a trustee is appointed who is responsible for handling the investment of trust assets, distributions to beneficiaries, and administrative tasks like keeping records and filing taxes.
With a directed trust, a “trust director” is also appointed in addition to the trustee. A trust director (sometimes called a trust advisor) takes an active role, according to the terms of the trust, often in charge of an area he or she has experience and knowledge in such as investing assets. This is different from a trust protector, whose role is mostly supervisory (read more about trust protectors here).
How does this work in practice? Here’s an example of a directed trust. A trust director is given the responsibility of directing asset investment, since he has professional experience in investing. The trustee is a personal friend of the family who knows the grantor and beneficiaries well; she’s responsible for directing distributions and handling administrative tasks. The trust director and trustee have distinct and complementary roles, roles that utilize their particular strengths and experience.
Pros and Cons of Directed Trust
Directed trusts are becoming more widespread. Here are some advantages and disadvantages.
Advantages of a Directed Trust
- Makes the role of trustee less burdensome, as the responsibilities are split between people in multiple roles
- Splits liability between trustee and trust director(s)
- Takes advantage of expertise by allowing each person involved to do what they do best
- Can give the grantor more control over the trust’s assets by appointing one or more trust directors with particular expertise
- Potentially increases oversight and accountability because there are more parties involved
Disadvantages of a Directed Trust
- Costs more, as a fee must be paid to the trust director(s) (unless waived)
- Could create conflict between trustee and trust director(s)
- Doesn’t eliminate possibility of fraud or mismanagement simply because there are more parties involved
Furthermore, directed trusts are not recognized by all states at this point. South Carolina does recognize such trusts, though not explicitly by name, in South Carolina Code Section 62-7-808.
Should You Consider a Directed Trust?
It depends on your goals and your circumstances. Smaller, simpler trusts typically do well with a single trustee. Larger, more complex trusts, especially those with real estate or business holdings, could benefit from a trust director with expertise in those particular areas.
For Help with Directed Trusts and More
Call estate planning attorney Gem McDowell at the Gem McDowell Law Group with offices in Myrtle Beach and Mt. Pleasant, SC. He and his team help individuals and families create personalized estate plans that reflect their unique circumstances and provide peace of mind. If you want to create a trust to protect assets, reduce tax liability, or set up the next generation for success, Gem can discuss different options available to find the one that’s right for you. Call today to schedule your free initial consultation at 843-284-1021.
