Directed Trusts have transformed the trust world, changing how we build and manage trusts for the families we serve. Codified in a select few states – including South Dakota – Directed Trusts unbundle the traditionally rigid structure of asset management and trust administration, offering settlors, beneficiaries, and their advisors more direction, control, and flexibility than ever before.
As we’ve discussed in previous articles, Directed Trusts separate trustee duties into three distinct roles, allowing different parties to manage investment, distribution, and administration functions. For more information, you can review the typical modern “directed” trust structure in this piece that outlines the directed trust concept.
Now, as Directed Trusts evolve across the country, some states – such as California and Pennsylvania – are adopting their own versions of the concept. However, it’s vital to ensure these Directed Trusts function as intended.
South Dakota’s model, with its clearly defined bifurcation of asset management and trust administration, sets the standard and has inspired similar legislation in states like Florida. But California’s Directed Trust framework lacks essential provisions, such as the formal recognition of an “excluded fiduciary,” and Pennsylvania’s proposed version has significant issues as well. It is crucial to understand that just because something is called a “Directed Trust” doesn’t mean it operates as effectively as it does under South Dakota law. The concept of an excluded fiduciary is critical, as it allows trustees – like Bridgeford Trust Company – to work with any asset manager without being held liable for their actions. This is the core of what Directed Trusts offer: the ability for families to retain direction and control, while the trustee is shielded from liability for investment and distribution decisions.
To learn more, watch this short video from David Warren, Co-Founder and Chairman of Bridgeford Trust Company.
While states like California and Pennsylvania are beginning to adopt Directed Trust structures, none match the clarity and effectiveness of South Dakota, a trust jurisdiction with renowned legislation and extensive experience in managing well-settled trusts.
To learn more about how Bridgeford Trust Company leverages South Dakota’s advanced Directed Trust statute to offer a powerful solution for families and their advisors, contact us via our contact page or by calling (605) 224-9189.
