Directed Trusts

If a corporate trustee has told you it will not hold your company stock, your fund interests, your rental portfolio, or your crypto—or has agreed to hold them and then insisted on selling them for “diversification”—you need a directed trust. This is the structure that lets you keep the institution’s administration and jurisdiction without surrendering your investment judgment to it, and for anyone whose wealth is concentrated in something they built, it is close to mandatory.

The conflict it resolves is structural, not personal. Under traditional law a single trustee bears the entire fiduciary liability, including for investment performance and asset allocation. A trustee holding one undiversified position is exposed to a prudent-investor claim from beneficiaries decades later, so the rational institutional response is to refuse the asset or to sell it—not because it is a bad investment, but because holding it is a bad risk for them. A directed trust removes their exposure by removing their authority, splitting one role into three:

Directed Trustee (Administrative)

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.

Investment Advisor (or Committee)

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.

Distribution Advisor (or Committee)

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.

The split only holds if the statute backs it. Delaware, South Dakota, and Nevada say explicitly that the administrative trustee has no duty to monitor the investment advisor and no liability for following directions absent willful misconduct ( 12 Del. C. §3313). Draft the same arrangement under a state without that language and you have achieved nothing—the trustee retains a residual duty to review, will price that risk into its fee, and will still object to the concentrated position. Situs is not decoration here; it is what makes the structure function (section “Top U.S. States for Trusts: Tax Benefits and Flexibility”).

Two practical points before you build one. Someone must actually serve as investment advisor, and that person is now a fiduciary—if you name yourself, you have taken on a duty to the beneficiaries and the liability that comes with it, which is the same liability the corporate trustee just declined. Name a successor, because you will not always be able to serve. And use the distribution advisor role deliberately: routing discretionary distribution decisions to a family member or committee keeps the awkward conversations inside the family, but it also puts that person in the position of telling their siblings no. If that is a relationship you would rather not damage, leave distributions with the institution and let the building be the villain (section “Choosing a Corporate Trustee: Pros and Cons”).