User:Wealthmentor/Directed trust

What is a Directed Trust?

Generally, a directed personal trust is one under which the grantor or beneficiary has the power to direct that the trust’s investments be managed by someone other than the trustee.

An important distinction should be made between a “directed trust” and the ability of a trustee to “delegate” investment responsibility. A trustee who delegates investment responsibility is held to similar standards of fiduciary responsibility (and liability) as if he/she directly manages the investments; whereas the investment advisor/manager assumes those responsibilities (and liabilities) under a properly drafted trust agreement that “directs” a trustee to use certain investment vehicles and/or specific outside investment managers.

Under a directed trust arrangement, the trustee still performs all other important functions necessary to carry out the terms of the governing trust agreement, including having frequent and necessary communications with the beneficiaries, but should refrain from commenting on the investments. To do otherwise could pierce the protective shield from investment liability and expose the trustee to unnecessary legal claims.