directed trust

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Directed trusts are a type of trust that allows the creator of the trust to separate responsibility for the management of some or all of the assets from the trustee. Under common law, the trustee would manage all of the trust assets and control the distribution to beneficiaries, but more modern directed trusts can divide these responsibilities. Often, individuals may have a unique asset or situation that they want a specific advisor or relative to manage, such as shares of a family business. In these situations, they can allocate those assets to an advisor in a directed trust while leaving the other responsibilities to the trustee. Given that the function of the advisor is very new to the legal landscape, 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.

[Last updated in January of 2022 by the Wex Definitions Team]