DIRECTED TRUSTS PROVIDE FLEXIBILITY FOR THE CLOSELY-HELD BUSINESS OWNER

By Jason P. Jones

April 12, 2022

In July 2021, Florida adopted the new Florida Uniform Directed Trust Act (“FUDTA”). Modern directed trusts are one of the best vehicles to provide intergenerational wealth preservation and flexibility. Historically, all the functions of a trustee have been handled by the same trustees. This meant that the same person(s) and/or entity was responsible for trust administration, investment, and distribution decisions. With a directed trust, a trust adviser has the power under the trust to direct the trustee as to one or more of the trustee’s responsibilities. Typically, in a directed trust arrangement, the trustee has no discretion over the area of administration or matter under the third party’s control.

The directed trust should be considered for clients with assets that require particular attention or special skills to administer such as a closely held business. Such clients may wish to designate an individual or trust company as trustee of their trust but might not feel that the designated trustee is best suited to handle the special asset. In those instances, the client could grant authority to a trust adviser who has a particular skillset or knowledge in handling such assets to make decisions regarding the special asset.  For example, the power to vote the shares of stock of the family business or otherwise make business decisions for the company.

Other examples include where the trust will own assets, such as real estate, portfolio investments, or alternative investments, such as private equity or hedge funds and cryptoassets (e.g., nonfungible tokens or “NFTs”).  Ideally, such assets would be transferred to a limited liability company or other entity to be managed by someone other than the trustee who has the requisite expertise. However, delegation of the trustee’s authority over trust investments that would result from this set-up would not generally relieve the trustee of potential liability and the duty to monitor the activities of the LLC manager. If the client’s objective is to provide the LLC manager with a free hand in managing the LLC and underlying investments without trustee oversight, a trust adviser could be appointed to serve in this external management role by directing the trustee as to such decisions.

Clients should be aware of the benefits of using these modern trusts and their ability to protect against current and future uncertainties. In addition to allowing specialized expertise in an asset class, directed trusts can be used to ensure a family’s views and goals are incorporated in the decision-making regarding the trust assets, reduce the total cost of trust services as an institutional trustee is likely to charge less when acting in a directed capacity, and increase overall flexibility with respect to management of trust assets. For more information about estate and trust administration and planning, please contact Attorney Jason P. Jones in PLDO’s Boca Raton, Florida office at 561-362-2030 or email jjones@pldolaw.com.

Disclaimer: This blog post is for informational purposes only. This blog is not legal advice and you should not use or rely on it as such. By reading this blog or our website, no attorney-client relationship is created. We do not provide legal advice to anyone except clients of the firm who have formally engaged us in writing to do so. This blog post may be considered attorney advertising in certain jurisdictions. The jurisdictions in which we practice license lawyers in the general practice of law, but do not license or certify any lawyer as an expert or specialist in any field of practice.

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