It is common for clients to have established a long-lasting relationship with one or more investment advisors over their lifetime. This relationship is so strong that in their eventual demise, they would like for the advisor to continue to provide services for the client’s assets that may be held in trust for successive generations. However, at the same time, the client may recognize that the most appropriate person to make decisions with respect to distributions, and matters other than investment decisions, is a corporate trustee. Commonly, the investment advisor cannot serve as trustee even if naming an individual is desirable.
As a result of these dual roles, many are now recognizing the need for bifurcation of duties in order to achieve the client’s desires. While trust instruments can and have been drafted to accommodate such an arrangement, the states, through legislation, are beginning to recognize and acknowledge the need to establish a framework to provide for the duties, powers and liability of the parties involved – typically a “trustee” and a “trust director.”
This type of trust, known as a “directed trust,” provides that someone other than a trustee, for example an investment advisor, has the power to direct the trustee with respect to making certain decisions. Commonly this authority relates to directing the trustee with respect to investment decisions. However, the trust director can have other powers, such as those relating to distributions to beneficiaries, for example. The trustee will normally have no discretion with respect to those matters to which the trust director has been given such authority. Thus, a directed trust arrangement should be distinguished from an arrangement where the trustee merely delegates its authority to an agent.