Effective wealth management requires a team of dedicated professionals, people who tailor a plan that pinpoints their client’s financial and legal needs. One client may need a special retirement account while another requires a trust or complicated estate planning. As directed trusts have become more common, directed trustees have become important members of wealth management teams. It’s important for you to know when you might need a directed trustee.
Directed Trusts and the Law
In 2016, Minnesota’s Uniform Trust Code took effect. The new Trust Code makes Minnesota law similar to trust law in other states and simplifies some procedures related to creating and managing trusts. One significant change to Minnesota trust law is that residents of Minnesota now can create directed trusts.
Directed Trusts vs. Other Trusts
Trusts are fiduciary relationships. One party (the “trustor”) gives another party (the “trustee”), the “right to hold title to property or assets for the benefit of a third party, the beneficiary.” The trustee handles all duties related to management of the trust. In some cases, the trustor retains all the trustee responsibilities.
In a directed trust, however, the trustor splits the trustee’s duties into tasks like “investment, distribution, administration, and oversight.” The directed trustee, also called the “excluded fiduciary”, takes on responsibilities like “trust administration and making distributions to beneficiaries” at the direction of another person, called the directing party.
Using a Directed Trust
An individual might use a directed trust to maintain control of an investment without taking on the administrative responsibilities of a trustee. The trustor serves as directing party or investment adviser to the trust and appoints a person or entity to handle administration of the trust.
A directed trust also might be used when the trust holds assets that a corporate trustee would not want to control. The corporate trustee then would become the directed trustee and another individual, often the trustor, serves as directing party.
On a wealth management team, each member has a role, an opportunity to use their expertise to best serve a client’s needs. At times, the directed trustee may take on responsibilities that others would like to avoid.
At Virtus Law, we have the experience and skills to advise clients on the use of directed trusts. Contact us by calling 612.888.1000 or by emailing us at email@example.com. We look forward to helping you in one of our conveniently-located office in Minneapolis, Edina, Mendota Heights, and Red Wing.