One only need look at any of the old wills online, such as George Washington’s or Benjamin Franklin’s, to realize how the issues involved in estate and trust planning have evolved over the years. We see this evolution today especially in the areas of trustee responsibility and delegation. The landscape of family succession planning is constantly shifting to accommodate planning structures which allow families to maintain an element of control, while also allowing other professionals to step in with their particular areas of expertise. This is the essence of what is known as open architecture trust design or “OATD.” The primary driver of OATD is the advent of the directed trustee concept which allows for the bifurcation of trustee responsibility amongst multiple parties.

What OATD basically allows clients to do is create their own all-star team to manage their trust assets in the most cost-effective and efficient manner. This is a trending area in trust law and progressive states, such as Delaware and South Dakota, have passed statutes formalizing these arrangements into what is known as Directed Trustee statutes. In directed trust jurisdictions, trustees are held more-or-less blameless for anything that goes wrong in an area the trust grantor explicitly assigns another party to handle.

Under the traditional trustee arrangement with a bank or trust company, the institution historically performed all bundled fiduciary functions for the trusts under its management. These include investment management, trust distribution responsibilities and the performance of all ministerial administrative responsibilities necessary to implement those exercises of discretion. Almost all decisions surrounding the trust are made by this one trustee. Sounds pretty inflexible doesn’t it?

But what if a client has a money manager who has guided the family well in its investments in good times and bad and a wise old uncle who knows the family well and would be best equipped to decide when and to whom to make trust distributions? Enter the Directed Trust.

Another factor leading to the rise in popularity of directed trustees is that many families today have balance sheets which include closely held business assets and alternative investments. With the rise of private equity deals and the trend of money moving out of the security markets over the last few years, trust portfolios no longer consist of only plain vanilla marketable securities. Gone are the days where a trust merely has an equity/bond mix as its primary holdings. Many trust portfolios now require a more specialized oversight which traditional bank and brokerage houses are not accustomed to. By utilizing a directed trustee, administrative trustees avoid the headaches of managing exotic assets, while clients feel secure knowing that experts are in charge of every aspect of their wealth.

In addition to the obvious benefits to families who want to “cherry pick” their trust advisors, the directed trust structure also offers an opportunity for money managers to differentiate themselves in the trust money management space. It is likely that the large banks and trust companies will continue to have the best infrastructure in place for acting as administrative trustee. But for the money management firms with experience in trust investments and the vision to market in this area, there will be opportunity.

It is no wonder that many clients are reaching out to their counsel to seek advice as to how best move the governance of their trust(s) to those states that allow such contemporary management of their family assets. All in all, this is an area of fiduciary law which bears close watching and we urge families with substantial trust portfolios to look closely at the directed trustee model to evaluate its value.