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Directed vs. Delegated Trusts:

The question of whether to use a "delegated" or "directed" trust arrangement is extremely important and often misunderstood. As families become more sophisticated about wealth management, a directed trust allows for greater flexibility with regard to investment management, distributions, trust situs and administration.

In a delegated trust, a trustee is generally allowed by state statute to delegate certain responsibilities, such as investment management, to other professionals and/or co-trustees. Under South Dakota statute, the trustee has the ability to delegate investment management to either a co-trustee responsible for selecting investment managers, or directly to one or more qualified investment professionals, pursuant to the trust document. A trustee in a delegated trust may desire exoneration language within the trust document and/or by separate agreement, but generally some due diligence and oversight of the investment portfolio rests with the administrative trustee. Typically, fees for administering a delegated trust are slightly higher than a directed trust as a result of the slightly increased risk involved.

A directed trust trifurcates the traditional responsibilities of a trustee into three distinct entities: 1. an investment committee, advisor or trustee, who is responsible for selecting outside investment advisors and managers to direct the trust's investment; 2. a distribution committee, advisor or trustee, who is responsible for determining when distributions should be made; 3. and an administrative trustee, which is directed by the investment and/or distribution advisors, committees and/or trustees as to the investment management and as to trust distributions as well as to make distributions, receive contributions and handle other day to day responsibilities of the trust. A few states (such as South Dakota) also allow for a trust protector, who is able to add or remove trustees, change the trust's situs, and even terminate the trust.

The modern structure of the directed trust utilizing a modern corporate trustee such as South Dakota Trust Company provides a "best of class" model for the trust, combining the fiduciary expertise of SDTC and the unparalleled trust and tax laws of South Dakota with the investment professionals of the client's choice globally.

For more information on the directed trust, including a diagram of the typical directed trust structure, please visit the section of this website entitled What is a Directed Trust?

For an in-depth comparison of the two trust structures, please read Al King and Pierce McDowell's article entitled "Delegated vs. Directed Trusts"(pdf), from Trusts & Estates magazine, July 2006.

The information on this Private Trusts website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. This information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.