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The Flexibility of the California Uniform Directed Trust Act
Published Date : October 29, 2024
The need to identify an individual or group of individuals to step in down the road as your successor trustee can be a daunting exercise. Some clients prefer to name a private fiduciary or corporate trustee in the place of a family member or friend for these reasons:
• Appointing a corporate trustee alleviates family members of the stress and legal responsibilities associated with trust management, allowing them to focus on personal and familial matters.
• Unlike family members who may become unavailable due to personal issues, poor health, or death, a corporate trustee provides continuity.
• Corporate trustees bring specialized knowledge in managing trusts, taxes, and legal compliance.
• Corporate trustees are neutral and objective, ensuring that trust decisions are made without personal bias or family conflicts.
A corporate trustee is typically a bank or trust company with specialized knowledge in trust administration, offering professional, long-term services, and legal compliance. They are often equipped to handle complex assets and provide continuity across generations. In contrast, a private fiduciary is an individual or small firm, often local, who offers more personalized service and may build closer relationships with beneficiaries. Additionally, private fiduciaries may be better equipped to step in during instances of trustor incapacity when there is a need for healthcare assistance in addition to management of financial assets.
If the family chooses a corporate trustee, there is a new ruling in 2024 that allows for greater flexibility in managing trust assets. In January 2024, California enacted the California Uniform Directed Trust Act, marking a significant shift in estate planning by formally allowing for the creation of directed trusts. Directed trusts separate the duties of a trustee, allowing a “trust director” to manage specific aspects of the trust, such as investments or distributions, without making them a full trustee.
The new legislation brings several key benefits for wealthy families and their estate planning. First, it allows trustees to focus on administrative tasks like tax filings, leaving more complex decisions, such as managing a family business, to a trust director with potentially more expertise in a given area.
Another significant advantage is increased specialization. Families with diverse assets, such as real estate, family businesses, or large investment portfolios, can now appoint independent advisors to manage these assets. This is particularly useful for families looking to retain trusted advisors, such as long-time investment managers, while keeping family members involved in key decisions, like distributions.
Additionally, directed trusts can lower costs. By specifying the trust director’s role, families may be able to negotiate lower trustee fees, avoiding the high costs of fully discretionary trustee services.
Overall, California’s adoption of the Uniform Directed Trust Act provides wealthy families with a more flexible, efficient, and secure way to manage complex estates. Sand Hill is here to help both with the decisions around which approach may be best for the family—private fiduciary or corporate trustee—and, of course, in the management of the investment assets, providing comfort and peace of mind with the team that you know. We also have a deep network of outside professionals in both the corporate trustee and private fiduciary space, and are passionate about being a center of influence for the individuals, couples, and families we are proud to serve.
Source: CA SB801 California Uniform Directed Trust Act
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