What is a Directed Trust?
A Directed Trust is a type of trust structure that allows financial planners and other advisors to play an active role in the management and investment decisions while separating fiduciary responsibilities among different parties. Unlike traditional trusts, where a single trustee has full control, a Directed Trust appoints separate roles, enabling greater flexibility and control over investment management and distribution decisions.
Key Roles in a Directed Trust
- Trustee (Administrative Trustee) – Handles administrative duties such as tax reporting, compliance, and record-keeping but does not make investment or distribution decisions.
- Investment Advisor/Investment Committee – Manages the investment strategy, asset allocation, and financial planning components, allowing financial planners to remain directly involved.
- Distribution Advisor/Committee – Oversees distributions, ensuring they align with the trust’s purpose and the grantor’s intentions.
- Protector (Optional) – A safeguard role that can replace trustees or advisors if necessary, ensuring alignment with the grantor’s wishes.
Benefits of a Directed Trust for Financial Planners
- Retain Investment Oversight – Unlike traditional trusts where assets are transferred to a corporate trustee, financial planners maintain a relationship with clients and continue managing investments.
- Enhanced Client Retention – Financial planners can maintain long-term relationships with high-net-worth families and ensure continuity of investment strategies across generations.
- Customized Wealth Management – The separation of roles allows tailored investment strategies while benefiting from professional trust administration.
- Asset Protection & Tax Benefits – Provides legal protections for beneficiaries while optimizing estate and income tax benefits.
- Multi-Generational Planning – Facilitates legacy planning while offering flexibility in trust governance.
How a Directed Trust Works in Practice
- Establishment: The client (grantor) creates a trust and appoints a corporate trustee for administration.
- Investment Strategy: The financial planner, serving as the investment advisor, formulates and executes investment strategies tailored to the client’s objectives.
- Ongoing Management: The administrative trustee ensures compliance, while the investment advisor continues to manage assets.
- Distributions: The distribution advisor or committee makes distribution decisions according to trust provisions.
- Long-Term Oversight: The protector can step in if adjustments to the trustee or advisors are needed.
Who Should Consider a Directed Trust?
- High-net-worth individuals and families seeking to retain their financial advisor while benefiting from professional trust administration.
- Business owners and entrepreneurs who want to maintain strategic investment control over trust assets.
- Multi-generational families planning for wealth transfer while ensuring investment strategies remain intact.
- Clients with complex assets such as real estate, private equity, or closely held businesses requiring specialized management.
Why Partner with a Directed Trust Provider?
- Expertise & Compliance – A directed trust structure provides legal and fiduciary expertise while complying with state regulations.
- Advisor-Friendly Approach – Keeps financial planners engaged in client relationships instead of transferring assets to a corporate trustee.
- State-Specific Advantages – Many states offer favorable trust laws that enhance asset protection, tax efficiency, and control.
Next Steps
For financial planners interested in leveraging Directed Trusts for their clients, partnering with a specialized trust company can help facilitate seamless integration into your wealth management strategy. Contact us to learn how a Directed Trust can benefit your practice and your clients.
Recent Comments