Finances

What is a Directed Trust?

There comes a time in a person’s life when they may need assistance keeping their finances in order. In those instances, there are various options to consider. Different accounts they could set up, people they can bring in. One of those options may be for them to have a directed trust.

The Basics

There are a variety of trusts one could sign up for, but what is a directed trust? To put it simply, a directed trust is a type of investment trust where the trustee is counseled by an advisor Friendly Trust that helps in arranging the execution of the trust. There could be only one advisor or a handful of them, and it would depend on the person’s individual needs. It can be handy when estate planning. It allows the trustee to place the family asset in a trust and have an advisor who is an expert in handling those assets and the knowledge of certain trust functions that individuals may not know.

How They Work

There is a team behind the account in a directed trust. How it works is there are other participants, which include financial advisors and a distribution committee. These groups are the ones who make sure the trust is executed correctly. For example, the trustee cannot advise or invest for the trust’s beneficiary. These advisors will also follow the terms of the trust and handle specific tasks tied to the management of the trust.

Not everyone who is planning their estate necessarily needs a directed trust. It is primarily used for investment accounts that will be bringing in a regular income to where some degree of management from advisors may be necessary. A directed trust will be the best option if the trustee has stocks, an annuity, income property, or other assets that will generate income.

The Benefits

The benefit of a directed trust is that it allows the individual to keep control of their assets while also appointing a person or team to handle the unique assets or conditions the trust oversees. In a regular trust, the trustee is in charge of every aspect, but the burden is somewhat off their shoulders with a directed trust. They have the option to lean on an expert advisor. This way, the responsibilities are split up in a sense the trustee will put their focus on the administrative aspects while the advisor will direct the trustee on the best ways to manage and keep a closer eye on the assets.

Over time, the standards are also kept high by optimizing the benefits of different skills within the advisor team and managing certain areas where they specialize. As a trust account becomes more mature, having a team with separate duties will enhance control that creates a high standard. A directed trust also protects the long-term vision of the individual.

When looking into directed trusts, the main thing to remember is choosing the right advisors. The last time anyone would want is for their finances to fall into the wrong hands and not be grown to their full potential.

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