¶ 601
Overview
Scope of the chapter. A directed trust is a trust whose terms give a person who is not a trustee a power over the trust. The person may direct investments, approve distributions, value a closely held business, amend administrative provisions, move the trust to another state, or release the trustee from liability. The trustee holds title to the trust property and carries out the directions, and the question that the law of directed trusts answers is how the fiduciary responsibility for the power is divided between the person who holds it and the trustee who executes it. This chapter examines the Uniform Directed Trust Act, which the Uniform Law Commission approved in July 2017, section by section. It begins with the background against which the Act was drafted: the Restatement rules on powers to control a trustee, Uniform Trust Code § 808 as promulgated in 2000, and the state statutes that preceded the Act. It then takes up the Act's scope and vocabulary (§§ 1–4), its exclusions (§ 5), the grant of powers of direction (§§ 6–7), the duties of the trust director (§ 8) and of the directed trustee (§ 9), the sharing of information and the absence of a duty to monitor (§§ 10–11), the treatment of cotrustees (§ 12), and the rules that adapt the office of trustee to the trust director (§§ 13–16). It closes with the pattern of enactment and with the drafting decisions the Act leaves to the instrument.
Relation to the chapters that follow. This chapter opens Part II, which treats divided fiduciary structures. The Act is the reference model for that Part, and the later chapters measure the state statutes against it. Chapter 7 examines the directed-trust statutes of Delaware, South Dakota, Nevada, Wyoming, Alaska and Tennessee in detail, including the provisions that depart from the Act. See infra ch. 7. Chapter 8 treats the advisers that instruments commonly create, by function. See infra ch. 8. Chapter 9 draws the line between a trustee's delegation of a function, which leaves the trustee with a duty to supervise, and a settlor's grant of a power of direction, which does not. See infra ch. 9. Chapter 10 collects the case law on the liability of directed trustees and directing parties. See infra ch. 10. Part III treats the trust protector, whose powers to amend, remove and veto raise questions of their own. See infra chs. 11–15. This chapter refers to those chapters where the Act's rules meet a question they treat more fully.
The Act in one paragraph. The Act validates terms of a trust that grant a power of direction to a trust director. It treats any power over a trust held by a person who is not then serving as trustee as a power of direction, whatever the instrument calls the holder, subject to five categorical exclusions. It gives a trust director the fiduciary duties of a trustee "in a like position and under similar circumstances," and allows the terms of the trust to vary those duties only to the extent they could vary a trustee's. It requires a directed trustee to take reasonable action to comply with a direction and relieves the trustee from liability for doing so, except that the trustee must not comply to the extent that compliance would be willful misconduct. It requires trustees and directors to share information that bears on both of their functions. It relieves each of any duty to monitor the other. It allows the terms of a trust to apply the same allocation of duty to cotrustees. And it applies to trust directors the rules that govern a trustee's acceptance, bond, compensation, resignation, removal, limitation periods, defenses and submission to jurisdiction. Unif. Directed Trust Act §§ 2–16 (Unif. L. Comm'n 2017).
Sources. Citations to the Act in this chapter are to the text approved at the Commission's 2017 annual meeting. The official comments are quoted where the drafters' explanation of a provision matters to its application. Much of the explanation in the comments is also published, in adapted form, in an article by the committee's reporter and chair. John D. Morley & Robert H. Sitkoff, Making Directed Trusts Work: The Uniform Directed Trust Act, 44 ACTEC L.J. 3 (2019) (cited here from the authors' September 28, 2018 draft, Harvard John M. Olin Center Discussion Paper No. 974). The article states that portions of it are adapted from the comments with the Commission's permission. A state's enactment may differ from the uniform text, sometimes on the central question of the directed trustee's duty, and the enacted statute of the governing state controls. See infra ¶ 690.
Why the directed trust matters to design. A settlor who wants a family member to control a family company, an investment professional to manage a concentrated portfolio, and a corporate trustee in a favorable jurisdiction to hold title and keep the books faces a choice of structure. The settlor can name all three as cotrustees, or name one trustee and give the others powers of direction. Under the traditional law of cotrusteeship each cotrustee must participate in the administration and must take reasonable steps to prevent a breach by the others. A corporate trustee asked to serve alongside a family member who controls a closely held business will price that duty into its fee, or decline. The directed trust allows the settlor to assign each function to the person best suited to it and to confine each person's responsibility to the function assigned. The design question is whether the assignment will hold when a beneficiary later challenges it, and the answer depends on the statute that governs the trust and on the care with which the instrument uses it.