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Directed Trusts – Empowering Families and Their Advisors

Directed Trusts – only codified and available in a handful of states across the country, including South Dakota – continue to drastically change the trust world by putting direction and control over many important aspects of trust administration back where it belongs… into the hands of settlors, beneficiaries, and their advisors.

Essentially, through bifurcating fiduciary roles and liability, the directed trust model creates a legal framework allowing trustees and beneficiaries to work with asset managers and independent trust companies of their choosing while having influence over discretionary distributions without disrupting planning objectives or the integrity of the trust instrument.

“Bundled” Trustee

Traditional bank trust departments and corporate trustees perform distinct services, including investment management and distribution, preparation of fiduciary accountings and trust tax returns, and administration of the trust in accordance with governing instruments and applicable state trust laws. All of these services are “bundled” together and provided under a fee structure that is typically based upon a percentage of assets under management. This approach is often rigid, inflexible, and requires settlors, co-trustees, and beneficiaries to work with asset managers that are employed by or are affiliated with the trust company. Under this approach, they are unable to work with an advisor of their choosing.

“Directed” Trustee

The directed trustee model unbundles these services, bifurcates liability, and distinguishes between the investment and administrative functions of asset management and trust administration. A directed trust statute formally defines the separate duties and responsibilities of the trustee and advisor (asset manager) and allows the grantor to appoint both as fiduciaries in a trust agreement. Therefore, the advisor is charged with and held responsible for all investment duties, while the directed trustee is charged with and held responsible for all trust administration duties. The combined fee charged by both entities is comparable to and often lower than traditional “bundled” trustees.

Under a directed trust model, a grantor or co-trustee can work with the advisor they choose while the trust administrative function is performed by an independent trust company. This approach allows clients to work with long-time trusted advisors in conjunction with trust administration.

South Dakota’s Directed Trust statute has been recognized as among the best in the nation. As a South Dakota chartered trust company, Bridgeford Trust Company can work collaboratively with clients and their long-time trusted advisors while delivering industry leading fiduciary capability. You can learn more about Directed Trusts and review the typical modern “directed” trust structure in this piece that outlines the directed trust concept.

For more information on Directed Trusts and how they empower settlors, beneficiaries, and their advisors while revolutionizing the trust and wealth management industry, please contact Bridgeford Trust Company’s team online or by calling (605) 224-9189.

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McKonly & Asbury is able to offer an extension of trust and fiduciary services to our clients and friends of the firm through our partnership with Bridgeford Trust Company. As a fully independent trust company chartered in South Dakota, Bridgeford Trust Company provides conflict free and innovative fiduciary services and progressive U.S. modern trust law solutions around asset protection, privacy, and tax planning to domestic and international families across the country and around the world.

You can learn more about Bridgeford Trust Company and the South Dakota Advantage at www.bridgefordtrust.com.

About the Author

McKonly & Asbury

McKonly & Asbury is a Certified Public Accounting Firm serving companies across Pennsylvania including Camp Hill, Lancaster, Bloomsburg, and Philadelphia. We serve the needs of affordable housing, construction, family-owned businesses, healthcare, manufacturing and distribution, and nonprofit industries. We also assist service organizations with the full suite of SOC services (including SOC 2 reports), ERTC claims, internal audits, SOX compliance, and employee benefit plan audits.

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