Probate & Trust Law Section Conference Manual ... - Minnesota CLE

II. DIRECTED AND DELEGATED TRUSTS
1. INTRODUCTION
Directed Trusts provide a family with maximum flexibility and control regarding a trust’s asset
allocation, diversification, investment management and distributions. Nearly all states have
“delegated” trust statutes, but only a few select states, have “directed” trust statutes. 73 A directed
trust allows individuals, who establish a trust with an administrative trustee in the directed trust
state, to appoint a trust advisor, an investment trustee/committee, who in turn can select an
outside investment advisor(s) and/or manager(s) to manage the trust’s investments. Multiple
advisors may be chosen based upon different asset classes/diversification. This allows a family to
utilize a Harvard or Yale Endowment-type asset allocation, which they might not otherwise be
able to do with a delegated trust as a result of laws, risks, time and costs.
2. PRUDENT INVESTOR ACT
Many individuals use the terms “directed trust” and “delegated trust” interchangeably when they
are actually very different. Both terms and concepts have gained immense popularity with the
advent of the Prudent Investor Act, and thus have changed the trustee’s traditional role regarding
trust investment management and in some instances trust distributions. A trustee’s duties and
flexibility regarding investment responsibilities within a trust typically vary depending upon
several factors:
Prudent Investor Act;
Whether the trust is directed or delegated;
The state statutes;
The trust instrument; and
Whether the trustee is a nationally chartered bank or trust company subject to
Office of Comptroller of the Currency regulation.
a. The Prudent Investor Act, adopted in 1994 reflects a modern portfolio theory and total
return approach to the exercise of fiduciary investment and discretion. 74 Most states 75
have adopted some form of the Prudent Investor Act which allows the trustee to acquire
most types of investments and measures investment performance based upon an
assessment of the entire portfolio versus an asset by asset analysis, which its predecessor
73 Selected directed trust statutes: Alaska (ALASKA STAT. § 13.36.375); Colorado (COLO. REV. STAT. § 15-1-307);
Delaware (DEL. CODE ANN. tit. 12, § 3313); District of Columbia (D.C. CODE § 19-1308.08); Florida (FLA. STAT. §
736.0703); Nevada (NEV. REV. STAT. §§ 163.553 - 556); New Hampshire (N.H. REV. STAT. ANN. §§ 564-B:12-1201
- 1206); South Dakota (S.D. CODIFIED LAWS §§ 55-1B-1 – 55-1B-11); Virginia (VA. CODE ANN. § 64.2-770);
Wyoming (WY. STAT. ANN. §§ 4-10-710 – 4-10-718).
Selected Delegated Trust States: Arizona (ARIZ. REV. STAT. § 14.10807); California (CAL. PROB. CODE § 16052);
Colorado (COLO. REV. STAT. § 15-1.1-109); Florida (FLA. STAT. § 736.0807); Illinois (760 ILL. COMP. STAT. §
5/4.10); Nevada (NEV. REV. STAT. § 164.770); New Hampshire (N.H. REV. STAT. ANN. § 564-B:8-807); New Jersey
(N.J. STAT. ANN. § 3B:20-11.10); New York (N.Y. EST. POWERS & TRUSTS LAW § 11-2.3).
74 RESTATEMENT (THIRD) OF TRUSTS § 227 (Prudent Investor Rule). The Uniform Prudent Investor Act is available
on the internet at http://www.uniformlaws.org/shared/docs
/prudent%20investor/upia_final_94.pdf. See also Bogert, TRUSTS AND TRUSTEES § 613.
75 To determine which states have enacted the Uniform Prudent Investor Act, please go to
http://uniformlaws.org/Act.aspx?title=Prudent%20Investor%20Act.
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