Enabling Advisors to control the Administration of a Trust.

Under California’s new Uniform Directed Trust Act, trusted advisors can be granted control of certain aspects of the trust administration as trust directors. Also, settlors now can allow co-trustees to divide (compartmentalize) the trust administration between themselves such that co-trustees are no longer responsible for each other’s administration. Thus, California now allows the trustee’s duties and powers to be segmented and allocated amongst two or more fiduciaries (legal representatives of the trust) who collectively administer the trust.

Until recently, the administration of the trust was always controlled and managed by one or more trustees with full authority and powers over the trust in their hands alone. Trustees can still hire agents and delegate certain functions. Nonetheless, under Probate Code Section 16012 (a), “The trustee [still] has a duty not to delegate to others the performance of acts that the trustee can reasonably be required personally to perform and may not transfer the office of trustee to another person nor delegate the entire administration of the trust to a co-trustee or other person.” That is, the trustee has certain non-delegable duties and even if there is a co-trustee involved, neither co-trustee could transfer all responsibility to the other co-trustee.

Now, however, a settlor can establish a trust that divides the trust administration across two or more fiduciaries and diminishes the trustee’s role; perhaps even reducing the trustee to simply holding title to trust assets and performing ministerial duties. That is, advisors whom the trustee once might have appointed as agents under the trustee’s supervision may now be nominated by the settlor when establishing the trust as “Trust Directors” to oversee aspects of the trust administration. As implied, the Trust Director directs (tells) the trustee to take action within the scope of the Trust Director’s authority. The Directed Trustee, as implied, is a trustee whose actions are directed (governed) by one or more Trust Directors, provided such directions are given within the Trust Director’s authorized scope of authority.

A trusted financial advisor might be appointed by the settlor as Trust Director for Investments. The financial advisor might be allowed to make certain investment choices that a trustee would otherwise not be allowed to perform such as investments that would violate the duty to diversify and/or not to invest in speculative / risky assets. For example, the settlor may want the Trust Director for Investments to invest in certain possibly high gain / high risk assets (e.g., crypto currency) that the trustee could not do. Naturally, the trust instrument would need to waive California’s statutory diversification and risky asset rules that prohibit such trust investments.

Importantly, the Directed Trustee has no duty to supervise or to second guess the Trust Director’s own judgment in either using or not using the Trust Director’s authority and powers. Nonetheless, the Directed Trustee still cannot implement a direction given by the Trust Director if doing so would be a willful breach of the trustee’s fiduciary duty.

Furthermore, the Directed Trust Act also allows co-trustees to control different aspects of a trust’s administration separately. For example, a special co-trustee with a professional license may be given exclusive authority to control and to manage the settlor’s professional (licensed) practice (e.g., a dentistry), if the professional settlor became incapacitated or died. The settlor’s spouse might be the other co-trustee with general control over all other trust assets. The settlor’s spouse still has authority to receive assets from the co-trustee managing the settlor’s professional practice (such as money if the practice were sold). The spouse as general co-trustee would administer the trust for the benefit of the settlor’s family while the special co-trustee winds up the professional practice.

In sum, California law allows for responsibilities for a trust administration to be segmented amongst a variety of fiduciaries (representatives), with unequal and compartmentalized powers, in order to achieve more desired results.

The foregoing discussion is not legal advice. Anyone confronting such estate planning issues should consult with a qualified attorney. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.