In an earlier blog post, I discussed the multitude of revisions that the Washington legislature made to our estate planning, probate and guardianship laws. As stated in my earlier post, “The legislature repealed the Uniform Directed Trust Act of 2015 and replaced it with a new Act, which is already effective. A directed trust allows a person other than the trustee to have authority over certain specified details of the trust’s administration.”
Why would this be desirable? Say, for example, Ernie Entrepreneur worked with his lawyer to create the Ernie Entrepreneur Revocable Living Trust (“EERLT”) in relation to his estate planning. Ernie then ensured the EERLT was properly funded, transferring all of his assets over to the Trust so that, upon his death, the assets will be administered pursuant to the Trust’s terms. Ernie operates a solely owned business which manufactures a specialized component used in solar panels. Only five businesses in the U.S. manufacture this component. Although Ernie understood his business backwards and forwards, very few people had a similar depth of knowledge. One of those was Lloyd Loyal, who had been Ernie’s employee for the last 30 years. Ernie trusted Lloyd implicitly. Ernie had named a professional fiduciary to serve as his Trustee of the EERLT upon his death, but knew that the fiduciary didn’t have the expertise to handle business-related issues. Ernie decided to appoint Lloyd as a “Trust Director” for the EERLT upon his death, giving him what is known as a “power of direction” to handle all matters related to the business. The professional fiduciary became a “Directed Trustee,” because his or her authority as a Trustee was limited by the requirement to follow Lloyd’s instructions in relation to the business. Ernie’s goal was that the Lloyd, as Trust Director, could take charge of all matters related to the sale of the business so that profit could be maximized and ultimately distributed to the beneficiaries of the EERLT.
The new Uniform Directed Trust Act can be found in Chapter 11.98B RCW. The Act seeks to promote good communication between the trust director and the directed trustee, so that the trust assets will be prudently administered. Specifically RCW 11.98B.090 states in part that:
(1) Subject to RCW 11.98B.100, a trustee shall provide information to a trust director to the extent the information is reasonably related both to:
(a) The powers or duties of the trustee; and
(b) The powers or duties of the director.
(2) Subject to RCW 11.98B.100, a trust director shall provide information to a trustee or another trust director to the extent the information is reasonably related both to:
(a) The powers or duties of the director; and
(b) The powers or duties of the trustee or other director.
Is using a directed trust a step in the right direction? Perhaps, depending on the circumstances. If you have questions about using a directed trust, please let us know. We’d be happy to help.
This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.