An Overview Of Advisor-Directed Trusts

Overview Of Advisor-Directed Trusts

Directed trusts can be a helpful estate planning tool because they enable you to place your family’s assets in a trust while gaining the expertise of a more knowledgeable professional than you are in managing specific trust tasks. An advisor friendly trust can allow you to maintain control while choosing someone to manage any unique assets or circumstances the trust may need to take care of. The trustee is in charge of all trust-related decisions in a typical trust.


A directed trust allows you to give more control to your family. Rather than worrying about dealing with the laws of a different state, your family attorney will handle all the necessary documentation. Your close family advisor can also help you maintain a legacy. The advisor can change the trust when necessary by responding to IRS rules.

With a directed trust, you can separate investment management and administrative tasks. In addition, you can choose to have several different advisors responsible for different asset classes, allowing you to diversify your investments.

Another benefit of an advisor-directed trust is that you retain control of the assets. Unlike a regular trust, with an advisor-directed trust, you will name your advisors. Each advisor will perform a specific function in your best interest. As a result, you can retain a personal relationship with your financial professionals and keep your portfolio strategy.


The costs of an advisor-directed trust depend on the type of trustee and the amount of asset management involved. Traditional bank trust departments and corporate trustees offer different services and typically bundle them together under a percentage of assets under management. This approach typically requires that the beneficiary works with a corporate asset manager. An advisor-directed trust requires that the client work with the advisor and a third-party trustee. This process makes sense if the trust is designed to provide long-term stability for the beneficiaries.

Trusts with less than $5 million in assets tend to charge a lower fee. In the case of a smaller, flat fee model, the fee might be as low as $2,000 per year. Similarly, a trustee with less than $50 million in assets might charge only $500 per year. Although costs will vary based on the size of the trust, the fees are typically reasonable and will not put the investor in an uncomfortable position.

Advisor-directed trusts are a great option for investors and financial advisors who want to separate administrative and investment management responsibilities. Independent trust companies can be a great choice, as they serve as both the trustee and administrator of the trust. In most cases, they will invest the trust assets with a licensed investment advisor. Advisors can also transfer the trust to a new trustee at any time.

Limitation Of Liability

A governing instrument governs a trust with an advisor. The governing instrument may contain provisions that limit the advisor’s liability. For example, a trust can have a clause that limits the liability of an advisor to the amount of the principal amount he invests. The advisor may also be an employee of the trust.

In addition, the advisor is generally not liable for any losses due to their own mistakes of judgment, mistakes of law, or the Fund or Series. Losses resulting from bad faith, willful misfeasance, or reckless disregard for obligations are exempt from liability.

A directed trust may also have a governing instrument that specifies who can make decisions regarding the assets in the trust. Usually, an investment advisor or bank is named the trustee. The trustee then engages other professionals in the administration of the trust. These professionals will provide investment and distribution recommendations to the beneficiaries. This delegation of duties benefits both the trustee and the beneficiaries. It also allows the trustee to focus on the purpose of the trust. Moreover, it can also limit a trustee’s liability.

Separation Of Administrative & Investment Management Duties

Separating administrative and investment management duties is a key feature of advisor-directed trusts. Trustees retain the right to oversee and control the investments, but you delegate the investment management duties to an investment adviser. This arrangement can help you manage the overall performance of the investment portfolio while limiting your liability exposure.

The benefits of this bifurcated model include a streamlined trust administration process and fewer legal hassles. The investment management and administration duties are separated, enabling you to reap the benefits of estate planning while maintaining your relationship with your current financial advisor. In addition, your clients won’t notice any change in the relationship because you will have your separate trust statement.

By separating administrative and investment management duties, the trust protector can focus on overseeing the investment portfolio while the administrative trustee serves as the vehicle to hold all parties accountable. Separating these two duties creates a high care, specialization, and control standard. Separated roles also provide multiple professional insights. Advisor-directed trusts are available in irrevocable and revocable forms. They both contain similar provisions, though the most important difference is the assignment of different duties to different members of a wealth management team.

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