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Directed Trusts: A Modern Approach to Administration

Historically, Trustees retained full authority and liability for the administration of a trust. The Trustee was responsible for managing investments properly, making appropriate distributions pursuant to the terms, and ensuring the necessary reporting requirements, including the filing of taxes and accountings were prepared.  In July 2020, the Commonwealth of Virginia adopted the Uniform Directed Trust Act, which codified the ability to bifurcate out the duties of a Trustee.

Under the new law, you can now establish a trust that provides a power of direction, thereby effectively dividing trustee responsibilities in a number of ways. Quite often this involves the appointment of an “investment trustee” and a “distribution trustee”.  In these situations, the distribution trustee is usually the primary point of contact for the beneficiary and they will direct the investment trustee to make such distributions, leaving the investment trustee with the investment decision responsibility. Sometimes, a directed trust may have contract terms, which direct a trustee to follow the investment decisions of an outside financial advisor. This allows the settlor of the trust to ensure the use of their existing financial advisor or advisory firm.

The terms of the trust itself will define the separate responsibilities of the investment trustee and the distribution trustee. Both have fiduciary duties with respect to their specifically defined responsibilities, and as a result, are liable for any breaches in the court of administration.

Many clients are concerned about balancing basic administrative issues with the desire to have professional asset management. Often, when utilizing a corporate trustee, the appointed trust officer is located in a “back office” that is separate from a settlor’s trusted financial advisor. Face-to-face meetings may be nonexistent, and distributions will often require board approval. These boards do not meet daily, and as a result there may be a delay in receiving distributions, which can frustrate the beneficiary. On the other hand, these trust companies, or financial advisors, are great at professionally managing the assets based on the objective of the trust. By utilizing a directed trust, the investment trustee, or outside financial advisor, is left to do what they do best, while a distribution trustee, either an individual or an entity, is able to facilitate distributions more efficiently. 

Not all trust companies operate the same, and the generalities are just designed to identify the benefit of bifurcating out certain responsibilities. We work with a number of corporate trustees, and assist our clients in identifying ones that best meets their objectives. When a corporate trustee cannot meet the full needs of a client, we can now recommend bifurcating the duties of two trustees to address concerns.

Ask Neo: Chicken Egg Production

Hook Law Center: Neo, what can you tell us about chicken egg production?

Neo: Well first off, let me introduce myself. Kit Kat retired earlier this month, so we now have some fresh faces here at Hook Law Center. My name is Neo and I am Shannon’s beloved Boerboel. We have a flock of hens at the house, but they have slowed down the production of their eggs, and so I went on a search to find out why chickens slow down or stop laying eggs.

I discovered that chickens typically lay one egg every 24 to 26 hours; however, production may slow down, or even stop, for a variety of reasons. This can be the result of age, nutrition, stress or sunlight. This time of year, production can slow down because we have fewer hours of sunlight in the day, and a chicken requires 16 hours of light maintain strong production. To encourage production when daylight is reduced, you can provide artificial light for you flock by using one incandescent 25-watt or LED 3- to 9-watt bulb per 100 square feet of coop space.

Posted in Senior Law News

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