What is a Directed Trust?

While trusts have been used for wealth management, privacy, and asset protection for many generations, the Directed Trust has become increasingly more popular. There are many benefits to placing your assets inside a trust, but for many business owners and high-net-worth individuals, the thought of placing hard-earned businesses and assets inside a trust suggests a loss of control over the trust’s assets. However, with Directed Trusts, you may be surprised at how little control you lose.

So, what exactly is a Directed Trust? In short, it’s a trust structure that facilitates asset protection and wealth management while allowing certain individuals or committees to maintain control over the investment and distribution of assets. Unlike traditional trusts, Directed Trusts enable the division of trustee duties among multiple parties. This division often occurs between administrative and investment functions, giving rise to two distinct roles: Investment Trust Advisors (ITA) and Distribution Trust Advisors (DTA).

As a Corporate Trustee within a Directed Trust framework, we are mandated to act only upon detailed directions from these advisors. For investments, the Investment Trust Advisor guides decisions regarding what, where, and how much to invest. These instructions can be as detailed as necessary to maintain control over asset management. Similarly, the Distribution Trust Advisor directs the Trustee on how assets should be distributed.

With these two roles, Directed Trusts allow for wealth management, asset protection, and grantor control over investment of assets, all while helping to minimize state income tax, city/local tax, capital gains tax, and corporate tax.

In my role as a Trust Administrator at First Covenant Trust & Advisors, most of my day involves ensuring all directions from Investment Trust Advisors and Distribution Trust Advisors are accurately documented, signed, and implemented.

If the Directed Trust piques your interest, give us a call and discover all of the possibilities these trusts have to offer.

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