What is a Directed Trustee?
Estate planning is a highly complex process that includes several steps. These steps can be complicated, but a directed trustee can help you here. In a Directed Trust, some tasks of distributing and administering the property placed into a Trust are delegated to a specifically appointed advisor, the Directed Trustee.
This advisor could be a wealth management firm or a single person who is well-versed in the financial, legal, and other fiduciary duties of managing a Trust’s assets. It will provide you with some expert tools which will guide you and help you put your family’s estate in a trust. It will also help you with an advisor with expertise in handling trust functions.
So, in this post, we will look at directed trustee in detail and how it will help you in estate planning. Let us begin.
What does a directed trustee do?
Before getting into it, let us look at the directed trustee definition. A directed trustee is a type of trustee who is specially appointed to manage a trust. A directed trustee executes its responsibilities per the instructions and preferences of the Trust’s owner, also known as the grantor.
After learning about directed trustees, let us look at directed trustee responsibilities. When a Directed Trustee gets assigned to a Trust, they are given the authority to make decisions about the Trust’s assets.
A Directed Trustee may perform administrative tasks related to the Trust Agreement, accounting obligations, fund or income distribution, and other ministerial roles. A Directed Trustee does not make investment choices for the Trust and does not usually advise the Beneficiary.
Whereas a Directed Trustee may work for a Trust management firm or a financial institution, they are not employed as an investing coach or financial advisor. However, they may work alongside wealth-management specialists in managing the Trust’s assets.
A Directed Trustee is responsible for preserving the assets in a Trust, distributing them in accordance with the Trust agreement or as is customary, and ensuring that the paperwork linked with the Trust and its income gets maintained up to date.
A Directed Trustee can be used when a trust incorporates investments, shares of a business, a shared asset, or the interests of a minor Beneficiary concerned.
In other words, a Directed Trustee can bring in a professional to ensure that what you leave behind to another person in Trust is appropriately handled and maintained.
What is the difference between a trustee and a directed trustee?
After knowing what a Directed Trustee is and its responsibility, let us look at the difference between a trustee and a directed trustee, also known as a directed trustee vs custodian.
A Directed Trustee manages various parts of a Trust but has little to no responsibility over the Trust’s investment and financial management decisions. On the other hand, a Custodian Trustee gets appointed to make financial and investment decisions regarding the Trust’s cash or other property and any income it may bring in.
The regular trustee has more power to make investment decisions and distribute assets to beneficiaries with an IRA trustee account. A Directed Trustee cannot decide how Trust funds are utilized, whereas a custodian Trustee can.
If we talk about directed trustees, they have a limited set of responsibilities and act like trust advisors or investment managers.
The directed trustee is completely responsible for protecting the trust assets, but they are not responsible for making investment decisions on the trust assets. But, in some cases, the designated authority can provide instructions to the directed trustee, and they can perform on behalf of the Trust.
Thus, a regular trustee has broad discretion for managing and investing trust assets. And a directed trustee follows the investment instructions from another authority.
What is a directed trustee in a 401 K plan?
A trustee directed 401k plan is a unique trustee who manages and safeguards the plan’s assets. But they can only play a part within their designated investment advisor team or according to a certain investing regulation.
Participants in a 401(k) plan often have the choice to invest their account funds as per a range of investment alternatives provided by the plan sponsor. Sometimes, a plan sponsor can appoint a directed trustee to hold and protect the plan’s assets while enabling members to handle their investments or delegate control to a third-party investment advisor.
The duties of a directed trustee include the following:
- a) Carrying out trades.
- b) Maintaining custody of assets as per instructions.
- c) Adhering to the investing guidelines set forth by plan members or appointed advisors.
The Directed trustee has no power to make decisions on behalf of the plan. They are also not responsible for administering the plan’s investment alternatives or giving its participants investment advice.
And, if we speak about directed vs discretionary trustee solo 401k, then a directed trustee for a Solo 401(k) follows the investment decisions the plan sponsor makes. And a discretionary trustee can make investment decisions on behalf of the plan. The decision of choosing a directed and discretionary trustee is entirely in the hands of the owner for making investment decisions.
What is a Directed vs. Discretionary Trustee?
Before understanding Directed vs. Discretionary Trustee, let us quickly understand directed Trust vs delegated Trust. So, in simple terms, a directed trust always involves a trustee who will follow all the investment instructions the authority provides. And in the discretionary Trust, a trustee has the authority to manage and invest the trust assets.
Many people think that directed and discretionary trustees are the same and play the same role. But the answer to this question is no. The terms might sound similar and confusing, but they are not. So, in the following section, let us look at directed trustee vs discretionary trustee.
A Directed Trustee is responsible for handling specific Trust aspects. And they do not have any right to take part in investment and financial management decisions about the Trust. On the other hand, a Discretionary Trustee gets allocated to perform wealth management and make investment decisions about funds or other property assets in the Trust.
Secondly, a Directed Trustee has no right to decide how the assets in a Trust should be used. Simultaneously, a Discretionary Trustee can have the authority to decide how the Trust’s assets can be used.
The overall difference between a trustee and a directed trustee differs in their discretion level for managing the Trust. The traditional trustees have more authority, and directed trustees are more intent on carrying out the Trust’s instructions.
What are some directed trustee responsibilities?
As discussed above, a directed trustee is authorized to perform particular duties or responsibilities according to the trust agreement. The responsibilities of a directed trustee vary depending on the agreement terms but, some of the key responsibilities are as follows.
- Following the Trustor’s Instructions: A directed trustee must follow the instructions according to the trust agreement. It includes the management of trust assets in a specific manner, making distributions to the beneficiaries, or taking specific actions as mentioned by the trustor.
- Managing the Custody of Trust Assets: A directed trustee can handle and manage the trust assets. It includes investments, real estate, and other assets. The trustee can also be responsible for monitoring the performance of third-party investment advisors.
- Reporting and Recordkeeping: A directed trustee is responsible for maintaining accurate transactional records related to the Trust. Also, a directed trustee is responsible for providing regular reports to the trustor and beneficiaries related to the Trust’s financial aspects.
- Fiduciary Responsibilities: A directed trustee is hired for strict fiduciary standards and is expected to provide the best results in any trust. It includes continuously managing the assets of the Trust and eliminating any potential conflicts of interest.
Why do you need a directed trustee?
Building Trust for your loved ones consists of several complex steps, but with the help of a directed trustee, these tasks can be carried out efficiently. Hence, one can appoint a directed trustee to manage their Trust.
One of the most common reasons is that a direct trustee has expertise in managing various types of assets. For instance, if a trust consists of some complicated investments like real estate then a knowledgeable directed trustee can manage them better as compared to a traditional trustee who might have little experience in this field.
A directed trustee can provide significant flexibility in managing trust assets. A directed trustee can make changes as needed and ensure the Trust continues to satisfy the trustor’s expectations.
In simple terms, a directed trustee can ease the trust management process, which is very useful for individuals having complex estate plans or specialized asset management requirements.
Thus, we have reached the final section of the article. To conclude, a directed trustee is appointed to execute specific responsibilities according to the trust agreement. A Directed trustee is unlike a traditional trustee who follows the trustor’s orders, providing control, flexibility, and unique expertise in managing the trust assets.