The Uniform Directed Trust Act in California
By Debbie B. Jones, Esq.
January 30, 2024
California joins 46 other states by enacting the Uniform Directed Trust Act on January 1, 2024. The new statute adds Probate Code sections 16600¬–16632. The California Act will apply to any decision or action occurring after January 1, 2024, regardless of the date the trust was established.
What is the purpose of a directed trust?
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.
This will provide greater protection for the Trustee. Without the enactment of the California Act, the Trustee was considered a co-Trustee over any sub-trusts, and would therefore be held to fiduciary duties for any actions by the co-Trustee. Now this duty to prevent a breach is reduced significantly, unless the directed trustee acts with malice or intent to harm the beneficiaries. The California Act allows the settlor to opt out of the default law of co-trusteeship and instead apply the rules of directed trusteeship. (Prob. Code, § 16620.)
Why use a directed trust?
Corporate Fiduciaries
The directed trust is popular with risk adverse corporate fiduciaries. The liability shield of a trust director provides the opportunity for the corporate fiduciary to serve a wider variety of clients.
Clients
Clients or grantors prefer directed trusts for a multitude of reasons. They may fund a trust with non-traditional assets and still gain the advantage of non-discretionary corporate trust administration expertise, such as tax filings, bookkeeping, custody, and compliance.
Directed trusts are also attractive to grantors preferring a family member or trusted friend to direct the trust distributions at their death. But would prefer a long-time investment manager to direct investments, or a long-time CPA or business partner to manage a closely held business. A directed trust may give the grantor the best of both worlds: competent trust administration and trusted third-party discretion over assets and distributions.
Finally, trustee fees for directed trusts are typically a flat fee and are much reduced from fully discretionary trustee fees which can be a percentage of trust assets.
Is a directed trust right for you?
The answer will depend on the types of assets you want to put into your trust. If you have questions regarding your current Estate Plan or if you are considering creating your Estate Plan be sure to contact BPE Law Group and discuss with our Estate Planning professionals.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have received a letter threatening legal action or are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.
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By Debbie B. Jones, Esq.
January 30, 2024
California joins 46 other states by enacting the Uniform Directed Trust Act on January 1, 2024. The new statute adds Probate Code sections 16600¬–16632. The California Act will apply to any decision or action occurring after January 1, 2024, regardless of the date the trust was established.
What is the purpose of a directed trust?
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.
This will provide greater protection for the Trustee. Without the enactment of the California Act, the Trustee was considered a co-Trustee over any sub-trusts, and would therefore be held to fiduciary duties for any actions by the co-Trustee. Now this duty to prevent a breach is reduced significantly, unless the directed trustee acts with malice or intent to harm the beneficiaries. The California Act allows the settlor to opt out of the default law of co-trusteeship and instead apply the rules of directed trusteeship. (Prob. Code, § 16620.)
Why use a directed trust?
Corporate Fiduciaries
The directed trust is popular with risk adverse corporate fiduciaries. The liability shield of a trust director provides the opportunity for the corporate fiduciary to serve a wider variety of clients.
Clients
Clients or grantors prefer directed trusts for a multitude of reasons. They may fund a trust with non-traditional assets and still gain the advantage of non-discretionary corporate trust administration expertise, such as tax filings, bookkeeping, custody, and compliance.
Directed trusts are also attractive to grantors preferring a family member or trusted friend to direct the trust distributions at their death. But would prefer a long-time investment manager to direct investments, or a long-time CPA or business partner to manage a closely held business. A directed trust may give the grantor the best of both worlds: competent trust administration and trusted third-party discretion over assets and distributions.
Finally, trustee fees for directed trusts are typically a flat fee and are much reduced from fully discretionary trustee fees which can be a percentage of trust assets.
Is a directed trust right for you?
The answer will depend on the types of assets you want to put into your trust. If you have questions regarding your current Estate Plan or if you are considering creating your Estate Plan be sure to contact BPE Law Group and discuss with our Estate Planning professionals.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have received a letter threatening legal action or are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.
Recent and Popular Articles From Our Blog:
• May 10, 2022 – Using the 1031 to Reinvest
• August 23, 2022 – Understanding Private Road Maintenance
• January 10, 2023 – Website Accessibility Requirements
• February 14, 2023 – Understanding Mediation and Arbitration in RPA
• April 4, 2023 – Understanding Liquidated Damages in a Home Purchase Contract
• June 20, 2023 – Understanding the Lis Pendens
• June 27, 2023 – Do’s and Don’ts Guidelines to a Dental Practice Transition