A directed trust divides the traditional role of a trustee into separate fiduciaries, allowing you to appoint different experts for administration, investment management, and distributions. Under traditional trust law, a single trustee bears full fiduciary liability for all actions, including investment performance and asset allocation. Many institutional trustees refuse to hold non-traditional or concentrated assets—such as private business stock, venture capital, real estate, or cryptocurrency—due to the litigation risk.
In a directed trust, the responsibilities are split:
Typically a corporate trust company located in a favorable jurisdiction (e.g., Delaware, South Dakota, or Nevada). This trustee handles the administrative duties (custody of assets, trust accounting, tax filings, and distributions) but does so only at the direction of the advisors.
An individual or family office appointed by the settlor who directs the trustee on all investment decisions (buying, selling, holding, and valuation of assets). The directed trustee is statutorily excluded from liability for following these directions.
An advisor who directs the trustee on when and how to make distributions to beneficiaries, particularly under discretionary standards. This is useful for managing family dynamics without involving the corporate trustee in personal disputes.
States like Delaware, South Dakota, and Nevada have robust statutory frameworks (e.g., 12 Del. C. §3313) that explicitly state the administrative trustee has no duty to monitor the investment advisor and is fully shielded from liability when acting on their directions, except in cases of willful misconduct.