Elevate Your Investment Strategy With Advisor Directed Trusts

Advisors who help clients set up directed trusts offer a client-centric differentiator to their existing book of business. This trust format separates duties between an administrative trustee and investment fiduciaries. (Also Know About 5 Tips On How To Find The Home Of Your Dreams)

Increased Liquidity

In a traditional trust arrangement, the trustee is responsible for investment management, distribution decisions, and administration. Modern directed trusts allow clients to separate fiduciary duties and select trusted advisors for each role. This approach enhances specialization, reduces liability, and ensures that distribution and investment decisions are being made by parties well-suited to those roles.

Whether it’s a family business, real estate, or mineral rights, a directed trust can position advisors to capture more liquidity upon selling these unique assets. This is especially true for the family business, which is typically the most significant source of wealth in a family and often represents substantial potential for liquidation.

An advisor directed trust also offers the opportunity to custody investments on an advisor’s trading/custodial platform, increasing service and efficiencies for both the client and the advisor. In addition, it can defensively protect advisors from poaching by trustee-capable trust companies and offensively attract new clients seeking a more tailored, flexible solution.

Enhanced Investment Discretion

Many clients want to preserve their wealth structures while relying on the expertise of financial professionals to manage their assets. Traditionally, they may name a corporate trustee to perform the administrative duties and another trusted financial advisor to make investment decisions on behalf of their trusts.

This arrangement allows them to split the administrative and investment responsibilities between two parties, optimizing specialization while limiting liability and fiduciary duty. However, not all trustees and investment managers are willing to accept the risk associated with acting as administrative and investment advisors, especially when a trust protector is in place.

With the flexibility directed trust statutes provide, more families choose to separate their administrative and investment responsibilities by naming a director as their administrative trustee and an independent financial advisor as their investment manager. (You will also love to read What Features Should Be In My Kitchen Pantry?)

Enhanced Tax Efficiency

Directed trust statutes allow a grantor to appoint their trusted family advisor(s) or financial advisor(s) as investment advisor(s) and distribution advisor(s). This unbundles services, bifurcates liability, and enables client-centric values.

Direct trust companies separate investment advisory fees from corporate trustee fees, resulting in a combined fee often lower than what clients pay for all-in-one bank trustee situations. Additionally, directed trust companies can accommodate unique assets such as commercial buildings, oil/gas properties, and ranches.

Educate your clients about the advantages of a directed trust arrangement and how it can benefit their situation. This new and growing area of the trust industry has created tremendous benefits for families, advisors, and trust companies alike. 

Enhanced Estate Planning

The directed trust model allows clients to appoint an investment advisor and a distribution advisor for distinct roles in the trust, providing targeted expertise and control. It also helps to mitigate liability and risk for trustees by separating management duties from fiduciary obligations.

Many clients want to retain and grow unique assets such as closely held businesses, private equity interests, limited partnerships, and LLCs. These nontraditional investments may not fit within a corporate trustee’s investment parameters but can be managed with directed trusts.

In addition to the investment benefits of a directed trust, it helps clients avoid costly probate and taxes by eliminating the need for trust administration. As directed trust statutes mature and continue to evolve, trust companies and advisors must be aware of the opportunities and nuances of these arrangements. This can help ensure they have the tools necessary to serve their clients’ growing needs. (Interesting Topics For You Tips For Choosing a Home Building Franchise)