The Importance of Having an Advisor-Directed Trust

An advisor-directed trust is important for investors. It can be a source of flexibility, checks and balances, and control. Unfortunately, advisors are not always named and sometimes do not respond to requests. As a result, a grantor may not realize they have an advisor.

Investing responsibilities delegated to investment advisors.

An Advisor Directed Trust delegated to an investment advisor has broad powers and enables the advisor to focus on asset management. The trust can have an administrator appointed by the grantor, which takes care of administrative tasks like opening bank accounts, making distributions, and filing taxes. The advisor also has broader control over the assets under the trust, such as appointing investment managers, managing investment funds, and diversifying investments. This type of trust is a popular choice among individuals and families who do not want to take on the management duties associated with managing trust assets.

Investing responsibilities delegated to an investment advisor are legal in almost every state. In most cases, the investment adviser is responsible for directing the investments, although the trustee is still responsible for monitoring the advisor’s performance. Even though they delegate investment management to investment advisors, these arrangements may not be suitable for high-value assets.


A directed trust allows trust creators to utilize their expertise as investment advisors, distribution advisors, and trust protectors. A trust company often serves as the administrative trustee, while a trusted advisor fills the role of an investment advisor. In many cases, multiple advisors manage different asset classes.

However, some delegated trust companies do not hold investment assets. In those cases, assets are still held on the advisor’s trading and custodial platform. Therefore, the advisor and new trustee must work together to achieve the desired results. The advisor must answer the trust company’s questions to ensure the client is happy with the outcome. In addition, the trust company should be clear about what role the advisor will play and what documentation will be needed. The trustee’s responses to specific questions about the process should indicate that they have some power level, but they should also demonstrate a cooperative attitude.

A directed trust begins with an administrative trustee. This trustee brings the trust under South Dakota law. The client has the flexibility to hire an investment advisor. The advisor can maintain custody of marketable assets while managing the portfolio. For example, a client may wish to keep a concentrated position in a low-basis asset or sentimental stock.

Checks and balances

The benefits of a directed trust are well-known to most financial advisors, who know that they give clients more control over managing their trust assets. But there is some controversy surrounding this new type of trust, which has emerged as a quiet revolution in the trust industry. In short, a directed trust allows you to take the reins of your trust from a traditional trustee or large institution.

Choosing the right trustee is key to the success of a directed trust. However, finding a trustee who will act in your client’s best interest is not always easy. In addition to ensuring a fit between the trust company and your client, you must ensure that the new trustee will be an effective partner. To help you choose the right trustee, ask a few questions before signing on the dotted line. Ask them about the role of the advisor, what documents you need to provide, and what they expect from you. Make sure the answers are clear about the role of the trustee and show their willingness to work with the client.

When setting up an advisor-directed trust, make sure to look for an arrangement that is permissible under state law. Most states allow directed trusts, but be sure to verify the legality of your jurisdiction before setting one up.


A directed trust allows the creator of the trust to maximize their skills by assigning different roles to trusted advisors. For example, the distribution advisor oversees the distribution of trust assets to beneficiaries, while the investment advisor manages the investments. Often, a trust may have more than one advisor, each responsible for a different asset class.

Delegated trusts are not appropriate for specialized, heavily concentrated assets. Instead, directed trusts give qualified investment advisors the power to direct decisions and relieve the corporate trustee of any blame.

Although directed trusts are a good option for many investors, some clients prefer to retain full control over their assets. As a result, most wealthy clients don’t want to cede control of their trust to a corporate trustee. Instead, these clients would rather work with their professional team of advisors.


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