Directed Trusts 101

While trusts are a common form of estate planning, there are variations in how trusts are formed. For example, Alex T. was considering forming a trust then transferring his family business to the trust. However, he was concerned about appointing a trustee. Alex had built his company from the ground up and was reluctant to hand authority and control to someone who did not possess his personal interest in the company. Eventually, he discussed the pros and cons of trusts in general – and directed trusts specifically – with his estate planning attorney.

Anatomy of a Trust

Trusts generally consist of the following components:

• Grantor. The grantor forms and funds the trust. You may also hear the words “settlor” or “trust maker” used in place of grantor.
• Trust Assets. The term “funding” the trust means transferring ownership of property to the trust.
• Trustee. The trustee manages the trust assets. One or more people or entities may serve as trustee.
• Beneficiary. Every trust has one or more beneficiaries.
• Purpose. There is always a reason to form a trust. Common reasons include avoiding probate, saving on taxes, asset protection, and supporting someone with special needs.

Directed trusts divert from the general anatomy of a trust in one important area: the trustee.

Directed Trusts in Action

In common trusts, the trustee manages the trust assets, having full authority over management and investment decisions. A trustee might be held responsible for making bad investments even if the trustee lacks investment or financial experience. However, the document forming the trust may restrict the trustee from delegating another person or entity to handle investments and business interests.

In a directed trust, the trustee’s responsibilities are split. One trustee serves as the directed trustee, literally taking directions from another trustee. The directed trustee also may be instructed to perform administrative duties for the trust.

Will a Directed Trust Fit Your Circumstances?

Do you want to maintain control over your investment assets? Are you looking for a trust that allows you to delegate some duties to a trustee with special experience or skills? A directed trust may be right for you.

John Mangan is an experienced Florida estate planning attorney, who has been board certified in Wills, Trusts & Estates by the Florida Bar. Call Law Offices of John Mangan, P.A. at 772-324-9050 to set up an appointment or use our online Contact Form.