What Is a Directed Trust?

A directed trust is a trust whose terms give someone other than the trustee, usually called a trust director, trust adviser or trust protector, a power to direct some part of how the trust is run, such as its investments, distributions or other administrative decisions. The trustee then carries out that person's directions, and in most directed-trust statutes the trustee's liability for the directed decisions is cut back: under the Uniform Directed Trust Act, the trustee must take reasonable action to comply and isn't liable for doing so, but must not comply if complying would be "willful misconduct." The person giving directions generally owes the same fiduciary duties a trustee would in that position. The details depend on the trust document and on the law of the state where the trust is administered. This is general information, not legal advice.

At a glance

How a directed trust works

In an ordinary trust, the trustee holds the property and makes every decision, so the trustee owes every duty. A directed trust divides that job. The Uniform Law Commission's Uniform Directed Trust Act (UDTA) describes the arrangement as one in which "the terms of the trust grant a person other than a trustee a power over some aspect of the trust's administration," and calls it "an increasingly common arrangement in contemporary estate planning and asset management." The Act uses three terms:

• Power of direction: a power over a trust, granted by the trust's terms, that the holder can use while not serving as trustee.
• Trust director: the person holding that power, "whether or not the terms of the trust refer to the person as a trust director," and even if the person is a beneficiary or the settlor.
• Directed trustee: a trustee subject to the director's power.

The Act applies to arrangements that work this way even if the document says "trust protector," "trust advisor" or "administrative trustee." The *person* who holds the powers is covered in What Is a Trust Protector?. This page is about the structure, and especially the trustee's side of it.

A power of direction can be set up in different ways. The UDTA commentary says it can be a power to tell the trustee what to do (for example, how to invest), a power the director uses on their own (for example, amending the trust), or a power to approve or veto the trustee's own proposals.

What can be directed?

Only what the document says. Florida's statute puts it plainly: a power of direction "includes only those powers granted by the terms of the trust" (Fla. Stat. § 736.1406(2)). The UDTA commentary lists powers its drafters expected trusts to grant a director, including to:

• buy, sell or retain investments, make or take loans, and vote proxies;
• value trust property or set how often it is valued;
• manage a business held in the trust;
• select a custodian for trust assets;
• modify, reform, terminate or decant the trust (see What Is Trust Decanting?);
• change the trust's principal place of administration, situs or governing law;
• determine the capacity of a trustee, settlor, director or beneficiary;
• give permission before a trustee acts, or release a trustee from liability (with limits, below).

Delaware's statute defines an "investment decision" broadly for this purpose. Unless the document says otherwise, it covers buying, selling and retaining the trust's investments, voting and control rights, choosing investment managers and custodians and, for nonpublicly traded investments, their valuation (12 Del. C. § 3313(d)).

The trustee's side: what a directed trustee owes

This is where states differ most. The UDTA commentary (written in 2017) describes two main groups of state statutes, and the older Uniform Trust Code model is a third approach:

The ULC comment placed Alaska, New Hampshire, Nevada and South Dakota in the no-duty group and Delaware, Illinois, Texas and Virginia in the willful-misconduct group when it was written. Check the current statute in your state.

A few points apply under the UDTA-style statutes:

• "Reasonable action" is about how, not whether. The comment says a directed trustee must carry out a direction reasonably (for example, buy the directed security at a reasonable time and cost and without self-dealing) but is "not required to assess whether the purchase of the security would be prudent."
• The floor can't be removed. Under the UDTA, the willful-misconduct standard is a mandatory minimum. Terms that say the trustee has "no duty" or is an "excluded fiduciary" are read as the willful-misconduct standard instead.
• Scope check. A trustee shouldn't follow a direction that is outside the director's power (UDTA § 9 comment). Florida says so expressly: before complying, the directed trustee must decide whether the direction is within the director's power, and a direction isn't outside that power merely because it may be a breach of trust (Fla. Stat. § 736.1409(3)).
• Releases have limits. A director's release of a trustee from liability doesn't work if the breach involved willful misconduct, if the release was obtained by improper conduct, or if the director didn't know the material facts (UDTA § 9(c); Fla. Stat. § 736.1409(4); Va. Code § 64.2-779.32(C)).
• Asking a court. A directed trustee with reasonable doubt about its duty may ask a court for instructions (UDTA § 9(d); Fla. Stat. § 736.1409(5)).

The director's side

Under the UDTA and the Florida and Virginia versions, a trust director has the same fiduciary duty and liability as a sole trustee (or cotrustee, if the power is shared) in a like position, and the document can vary that duty only as far as it could vary a trustee's (UDTA § 8; Fla. Stat. § 736.1408; Va. Code § 64.2-779.31). The Act's prefatory note says that, compared with a trust where the trustee holds every power, this structure means "more aggregate fiduciary duties owed to a beneficiary": the director carries the usual trustee duties for the directed matters, and the trustee still has to avoid willful misconduct.

Not every state takes that line. Delaware treats advisers as fiduciaries but lets the governing instrument provide that an adviser, including a protector, acts "in a nonfiduciary capacity" (12 Del. C. § 3313(a)). Nevada treats investment trust advisers as fiduciaries "unless the instrument provides otherwise" (NRS 163.5551).

Other director rules under the UDTA: limitation periods and defenses track those for trustees (§§ 13–14); accepting the role submits the director to the state's courts (§ 15; Fla. Stat. § 736.1415; 12 Del. C. § 3313(g)); and trustee rules on acceptance, bond, compensation, resignation, removal and vacancies apply by default (§ 16). A director who is a licensed health care professional acting in that capacity, such as when deciding a beneficiary's capacity, has no duty or liability under the Act unless the terms say otherwise (§ 8(b); Fla. Stat. § 736.1408(2)).

Information and monitoring

• No duty to monitor by default. Unless the terms say otherwise, a trustee doesn't have to monitor the director or warn anyone when it might have acted differently, and a director has the same protection as to the trustee (UDTA § 11; Fla. Stat. § 736.1411; Va. Code § 64.2-779.34). Delaware's version also says the trustee has no duty to "communicate with or warn or apprise any beneficiary" about such cases (12 Del. C. § 3313(e)).
• Ordinary reporting survives. The UDTA comment says a directed trustee still has its usual duties to report, account and answer reasonable beneficiary inquiries under other law.
• Trustee and director must share information reasonably related to their powers and duties, and each can generally rely on what the other provides unless that reliance would be willful misconduct (UDTA § 10; Fla. Stat. § 736.141; Va. Code § 64.2-779.33).
• Florida adds a beneficiary right: a trust director must give a qualified beneficiary, on written request, information within the director's knowledge or control that is reasonably related to the director's powers or duties (Fla. Stat. § 736.141(5)).

Directed trust vs. a split between cotrustees

A settlor can get a similar division with two trustees. Delaware and Florida let the document give one trustee, "to the exclusion of" the others, power to direct or prevent certain actions. The excluded trustee then has directed-trustee-level duty for those actions, and the trustee holding the power is liable to beneficiaries "as if the excluded trustees were not in office" (Fla. Stat. § 736.1412; similar in 12 Del. C. § 3313A). The UDTA lets the trust terms relieve a cotrustee to the same extent as a directed trustee (§ 12).

What the directed-trust statutes don't cover

The statutes exclude some powers, which are governed by other law instead (UDTA § 5; Fla. Stat. § 736.1405; Va. Code § 64.2-779.28):

• a power of appointment (a nonfiduciary power to choose who receives trust property);
• a power to appoint or remove a trustee or trust director;
• a settlor's power while the trust is revocable;
• a beneficiary's power over their own interest;
• a power that must be held in a nonfiduciary capacity to meet the settlor's federal tax objectives, if the terms say so (Florida adds a power to reimburse the settlor for income tax on trust income and a power to add or release a power that makes the trust a grantor trust).

In Florida these exclusions apply "unless the terms of a trust expressly provide otherwise by specific reference" to the statute. Virginia also excludes a power if the trust says the Act doesn't apply. Because several of these touch tax status (see What Is a Grantor Trust?), have an estate or tax attorney review them.

Which state's law applies?

Directed-trust statutes generally apply to trusts whose principal place of administration is in the state:

• Florida (Florida Uniform Directed Trust Act, Part XIV of the Florida Trust Code, ch. 2021-183): applies to trusts administered in Florida. For trusts created before July 1, 2021, it applies only to decisions and actions on or after that date. A term naming Florida as the principal place of administration is valid and controlling in a directed trust if a trust director's principal place of business is in Florida or a trust director is a Florida resident (Fla. Stat. § 736.1403).
• Virginia (Uniform Directed Trust Act, Va. Code § 64.2-779.26 et seq., 2020 c. 768): applies to trusts administered in Virginia that were created on or after July 1, 2020, or that were later amended by the settlor, modified by a nonjudicial settlement agreement, decanted or modified by a court, or that had opted into the earlier rule by specific reference. Other Virginia trusts follow the older § 808-style rule (Va. Code § 64.2-779.27).
• Delaware (12 Del. C. § 3313): the UDTA's drafters said they were "influenced by the prominent directed trust statute in Delaware," and the prefatory note refers to "the popularity of directed trusts in Delaware."
• Other states: many have their own directed-trust or trust-adviser statutes, and some follow the UDTA. Don't assume your state follows the model act.

Directed trust, trust protector and decanting: how they connect

Questions to ask an attorney

1. Which state's law governs the trust, where is its principal place of administration, and does that state have a directed-trust statute?
2. Exactly which decisions (investments, distributions, a business interest, valuation, amendments) should the director control, and which stay with the trustee?
3. Should the director be a fiduciary, and can the document change that in our state?
4. What standard of liability will the directed trustee have for following directions?
5. Who can remove or replace the director, and who is the successor? (Removal powers sit outside most directed-trust statutes, so the document has to cover them.)
6. What information will the trustee and director share, and what reports will beneficiaries get?
7. Does any power affect grantor-trust status or other tax results?
8. For an existing trust, does the directed-trust statute apply at all (cut-off dates, opt-in language)?
9. Would cotrustees with divided powers work better than a trust director?

Find an attorney

• Find a Lawyer
• Private Wealth attorneys
• Estate Planning/Probate attorneys
• Estate & Trust attorneys
• Michael Kosnitzky — partner and co-leader of Pillsbury Winthrop Shaw Pittman LLP's Private Wealth practice, New York; per his profile, he advises individuals, families and privately held businesses on tax planning, estate planning, asset protection and family governance, and has offices in Miami and New York
• Robert W. Haley — Managing Attorney, The Estate & Elder Law Center of Central/Southside Virginia, PLLC, Danville, Virginia; Certified Elder Law Attorney (CELA®) per his profile, which lists elder law, estate planning, probate and estate administration, asset protection and Medicaid planning, and fiduciary services

Listed attorneys are paid members of the Haute Lawyer Network. Neither profile mentions directed trusts; ask any attorney about their experience with the kind of trust you have or want.

Related Haute Lawyer answers

• What Is a Trust Protector?
• What Is Trust Decanting?
• What Is an Irrevocable Trust?
• What Is a Grantor Trust?
• What Is a Trust Modification?
• What Are the Duties of a Trustee?
• What Is Breach of Fiduciary Duty?
• Estate Planning for High-Net-Worth Families
• What Does a Private Wealth Lawyer Handle for a Family Office?

This article is general information, not legal advice, and doesn't create an attorney-client relationship. Talk to a licensed attorney in your state about your situation.