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Simple English definitions for legal terms
directed trust
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A quick definition of directed trust:
A directed trust is a special type of trust where the person who creates the trust can choose someone else to manage some or all of the assets in the trust. This is different from a regular trust where the trustee manages everything. Sometimes people have special assets or situations that they want a specific person to manage, like a family business. In a directed trust, they can give those assets to that person to manage while leaving the other responsibilities to the trustee. It's important to be very clear about who is responsible for what in a directed trust because it's a new idea and the rules are still being figured out.
A more thorough explanation:
A directed trust is a type of trust that allows the creator of the trust to separate responsibility for managing some or all of the assets from the trustee. In traditional trusts, the trustee manages all of the trust assets and controls the distribution to beneficiaries. However, in directed trusts, the creator can divide these responsibilities.
For example, let's say that a person wants to leave shares of their family business to a specific advisor or relative. They can allocate those assets to the advisor in a directed trust while leaving the other responsibilities to the trustee.
It is important to specifically define the role of the advisor and the intentions of the creator of the trust because the common law and fiduciary rules that govern the trustee may not apply to the advisor. Some states have statutes that define the boundaries between the advisor and trustee, with some giving more oversight to the trustee and others making the advisor completely separate from the trustee.
Overall, directed trusts allow for more flexibility in trust management and can be useful in situations where a specific advisor or relative is better suited to manage certain assets.