Directed vs. Delegated Trusts
Directed Trusts
Codified in Tenn. Code Ann. § 35-15-710, a directed trust bifurcates the trustee’s fiduciary responsibilities, granting authority over certain trust functions (such as investments) to a 3rd party “trust advisor”. The trust advisor exercises their authority by directing the trustee to act in accordance with their decisions.
Under Tennessee law, directed trusts may be created by 1) appointing a trust advisor in the trust document, 2) using a binding non-judicial settlement agreement signed by the qualified beneficiaries to convert to a directed trust, 3) by way of a court ordered modification, or 4) by decanting the original trust into a newly created directed trust.
Delegated Trusts
A delegated trust is where the trust document appoints a trustee with authority over both investment, distribution, and administrative decisions. The trustee then delegates investment management to a non-trustee investment advisor to manage the assets on their behalf. The trustee retains control over distribution activities and will perform all necessary distribution duties.
Delegated trusts do not contain indemnification or bifurcation language that allows for the separation of investment responsibility, but where the beneficiaries want a financial advisor to manage the trust assets. Such delegation is a fiduciary duty undertaken by Wealthspire Trust and must proactively monitor the advisor’s performance according to the requirements of the trust and relative to industry standards. Delegated trusts are invested pursuant to the provisions of the trust document as well as an agreed upon Investment Policy Statement with Wealthspire as trustee and the investment advisor.
