Directed Trustees and Other Possible Trust Parties
By: Barry E. Haimo, Esq.
May 25, 2024
While there are three main parties that are involved in every trust – the Creator, the Trustee, and the Beneficiary – those are not the only possible parties who might be involved in administrating the trust.
This post is going to cover some of the additional parties who might be a part of your trust depending on the nature of the trust itself and how you would like it to be run.
Possible Parties Involved in Trust Administration
Read Transcript
Hi, welcome back to another dose of Bite-Sized Bits of Knowledge, where we give you meaningful information in a short amount of time. Today, we’re going to talk about the first of about five videos on trust administration. The videos are going to be discussing the parties, succession and transition, disclosures, trust management, and distributions. Each one will be its own video.
Today, we’re going to talk about the trust parties. Who are the parties to a trust? Well, I would say this group that I’m about to tell you is pretty much the most of the parties you’re going to see. There may be some outliers, but it’s not usual, not common.
To start, the creator of the trust is typically referred to as a settler or grantor or a lot of other names. Trustor. I’ve seen a lot of different ways of doing it. Every state has their own little way of doing it. In Florida, it’s a settler, but we usually typically call it a grantor.
It really doesn’t matter what it’s called. The grantor is the creator. Typically, the grantor is making a revocable trust. They make you a revocable trust. They could also make a grantor non-revocable trust or an irrevocable trust, which is less common but useful where needed. Typically, the grantor is called a grantor for tax purposes, for state law purposes. It’s a term you’ll hear, and that’s what it is.
Trustees typically manage the estate, the trust for the benefit of the beneficiaries. Usually, there’s a trustee, there’s possibly a co-trustee, there’s possibly successor trustees. The trustee is the one who’s acting. The co-trustees are the multiple ones who are acting. That’s not uncommon. And successors are those who are in the bullpen. They’re waiting to act should the people who are in the capacity as trustee no longer be able to serve.
Beneficiaries. So the trustee manages the assets for the benefit of the beneficiaries. Beneficiaries can be one or more of them. They could be individuals. They could be charities, tax exempt, non-tax exempt. There’s really no rules on who it can’t be, and no rules, really, on who it can be. So you’re pretty flexible in who you can designate as beneficiaries, with some exceptions in Florida and other states that you cannot disinherit, like your spouse in Florida, or minor kids and spouse with respect to your homestead. That’s a subject for another day.
Another party would be a trust protector. Sometimes it’s called a trust advisor. That’s a party that typically serves two purposes. We have a whole video on that, but typically they serve purposes of flexibility and oversight. Catch our video on trust protectors separately. They’re very useful. We highly encourage you to include them.
Directed trustees is a common thing. I think they’re becoming more popular, especially in states that have self-settled asset protection trusts like South Dakota and Alaska. These are trustees that have very specific, designated or delegated duties like financial. They manage the assets, the trustee is responsible for them, but the directed trustee is the one who manages them. It’s like an agent, almost agent principle thing.
The last thing I would mention about trust parties would be a committee. Sometimes there’s committees, investment committees, business committees. It’s all about management and structure, and there’s a lot of ways to do it, especially with complicated trusts with businesses and complicated investments. Sometimes you just don’t want to have one person doing it all. If you go to South Dakota, they’re going to have you in an assortment of committees and direct to trustees, and that’s probably for asset protection purposes, if that’s the direction you want to go.
I hope you found this helpful. Thanks for stopping by and stay tuned for more.
As mentioned in the video, many of those potential parties will be covered in a future video. Below, though, we would like to delve more deeply into a specific type of party for a specific type of trust.
What You Should Know about Directed Trusts and Directed Trustees
Though we touched on directed trustees in the above video, we never really covered what a directed trust is. Quite simply, it is a type of trust where responsibilities are divided between multiple parties: the directed trustee and the trust advisor.
The division of responsibilities can vary, with advisors sometimes handling investment decisions while the trustee retains distribution discretion. In other cases, both investment and distribution responsibilities are assigned to advisors, leaving the directed trustee to perform administrative functions. A directed trustee can be a wealth-management firm or an individual with expertise in financial, legal, and fiduciary duties necessary for managing the trust’s assets.
What Does a Directed Trustee Do Specifically?
A directed trustee handles various administrative tasks related to the trust, such as:
- Managing the Trust agreement
- Performing accounting duties
- Distributing funds or income
- Other ministerial functions
A directed trustee does not make investment decisions or provide financial advice to the beneficiaries. They may work alongside wealth-management professionals but are not hired as investment coaches.
The primary responsibilities of a directed trustee include preserving the trust’s assets, ensuring distributions as specified in the trust agreement, and maintaining the associated paperwork.
When Might You Want to Set Up a Directed Trust?
A directed trustee is often used when the trust contains investments, business shares, shared assets, or when minor beneficiaries are involved, ensuring the assets are properly maintained.
Though every situation is different, you may want to consider setting up a directed trust if you need to:
- Manage assets that generate income or profit
- Distribute investments to one or more beneficiaries
- Transfer, buy, sell, or manage real estate
- Allocate revenue from an asset among multiple beneficiaries
Do You Need a Directed Trustee?
If you’re considering setting up a trust, you’ve likely been busy growing your business, investing, raising a family, and taking care of loved ones. Planning ahead with the right trust as part of your estate plan can help preserve and grow your wealth while ensuring your family is cared for.
Different assets require different types of trusts. Passing down money in a bank account differs from bequeathing stock, and leaving part-ownership of a business or property to an heir requires careful trust management. Choosing the right trust and documenting your estate-planning decisions is crucial for a smooth transfer of assets.
In other words, it’s an individual thing dependent upon your unique financial and beneficiary situation. If you are unsure exactly what kind of trust you would like to set up to leave the legacy you want, or even if you’d just like to learn more about how trusts work, let us help. Contact us today and get started on protecting your future.
Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com
YouTube: http://www.youtube.com/user/haimolawtv
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