Advisors and clients often require a directed trustee when their assets include concentrated positions in low-basis assets, sentimental stocks, real estate, small family-owned businesses or unique asset types. Mandated trust statutes allow a trusted investment advisor or family member to take on these additional fiduciary duties while taking advantage of the protection, privacy and tax benefits available in many directed trust states.
Maximize Your Investments
Directed Trust allows investment advisors to retain custody of marketable investment assets. This means the advisor can maintain their existing trading/custodial platform, increasing service and operational efficiency for both the client and the advisor. This also makes it easier for advisors to handle complex assets like a high concentration in a specific stock or unique assets such as real estate, private placements, or mineral rights.
The directed trustee model unbundles services, bifurcates liability, and empowers clients by allowing them to select their trusted family advisors and financial advisors to fill the roles of distribution advisor and investment advisor. This team approach maximizes the skills and expertise of the individual advisors, resulting in superior standards of care and control. Directed trust statutes like South Dakota’s define these separate duties and responsibilities.
Maximize Your Liquidity
The trust industry is going through a quiet revolution as sweeping changes to state trust laws support directed and delegated trustee models. This allows financial advisors to take control of their client’s trust assets and lead them where they want them invested. This also allows unique assets such as ranches, oil/gas and commercial buildings to be managed more effectively.
Unlike traditional trustees, who have three distinct roles, directed and delegated trusts bifurcate investment management, distribution management, and trust protector duties. This allows your team to maximize the benefits of specialization within your wealth management structure, allowing each advisor to focus on their areas of expertise. In addition, the administrative trustee can retain custody of non-marketable investments, and the investment trust advisor can maintain physical control of marketable assets.
Maximize Your Taxes
An Advisor Directed Trust bifurcates asset management and distribution decisions between a trustee and a non-trustee, often called the trust protector, distribution advisor or investment advisor. This separation limits the trustee’s liability and enables each party to focus on their expertise, leading to better trust management.
Typically, a directed trust model allows a client to allocate unique assets (e.g., ranches, oil/gas properties, commercial buildings) to a family member or trusted advisor while leaving the remaining trust assets managed by the trustee company. This unbundles services, reduces trustee fee expenses and increases the value of the relationship between clients and their wealth advisors. This also offers a more efficient alternative to bundled trust models in which the trustee company manages all investment management fiduciary risks, fees, and administrative expenses.
Maximize Your Estate
A quiet revolution has wrested control over trust assets from traditional trustees and back into the hands of independent trust companies, advisors, and clients. Directed trust companies separate investment advisory fees from corporate trustee fees. They generally charge a combined price lower than what clients pay at all-in-one trust companies and can accommodate unique assets such as commercial buildings, oil/gas properties and ranches.
The ability to offer directed trusts as a value-added service can be a powerful competitive differentiator for advisors. Adding this capability can defensively protect the advisor’s book from poaching by trustee-capable advisors and offensively attract new assets to the existing client relationship. Separating duties enhances specialization, maintains a high standard of care and empowers family wealth advisors to deliver a modern, flexible solution for their families.
Maximize Your Family’s Legacy
As a financial advisor, you can help your clients take control of their future by introducing directed trusts. Modern directed trust statutes offer families more flexibility and control over elements of their Trust, such as investments, distributions, and oversight. They also reduce fiduciary liability by separating administration duties from investment management responsibilities.
HNW families often appoint committees of family members or trusted advisors to oversee and make decisions regarding their trust assets. They may also include a non-fiduciary appointment like a trustee protector in their structure to reduce liability further. This approach also enables the participation of non-US family members and advisors that they feel comfortable working.
