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Main image for Who’s the Boss? Fiduciary Liability and Directed Trusts
Article

Who’s the Boss? Fiduciary Liability and Directed Trusts

American Bar Association Real Property, Trust and Estate Law Journal, Volume 57, Number 3, Fall/Winter 2022

3.27.2023

“Directed Trusts”—trusts in which someone other than a trustee has a role in the administration—are becoming more and more commonplace. However, many states impose differing fiduciary standards on trustees and those third parties (so-called “trust directors”).

This lack of uniformity leads to uncertainty and confusion about fiduciary liability, such as whether a trust director owes a fiduciary duty to the beneficiaries; whether a trustee can be absolved of liability if the trust director is a nonfiduciary; and whether the directed trust can be structured so that neither the trustee nor the trust director are accountable as fiduciaries.

These uncertainties will likely need to be addressed by our courts. In the meantime, practitioners must use their best efforts to interpret sometimes unclear statutory authority and consider the potential issues in drafting directed trusts and advising clients regarding their administration.

This Article will examine these issues, starting with an introduction of directed trusts, followed by a discussion of governing statutory law and model legislation, including the Uniform Directed Trust Act. This Article will then tackle the extent of liability faced by trust directors and trustees, respectively. Throughout the Article, we integrate important drafting considerations estate planners should take into account when preparing directed trusts. Of course, this Article does not focus solely on issues of interest to estate planners. The authors of this Article collectively practice in all areas of trust and estate law. Thus, this Article should also be of interest to those who practice in the areas of trust and estate administration and fiduciary litigation.

READ THE ARTICLE

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