On July 1, 2020, Iowa’s new directed trust statute went into effect, benefiting families who desire to assign various management roles within a trust. While Iowa trusts were traditionally administered by corporate trustees controlling all aspects of management, families can now create directed trust structures as part of their estate plan, giving them more flexibility to empower trusted advisors in management roles.
Traditional role of a trustee vs. advisor roles within a directed trust
Traditionally, a trust is managed by a trustee holding the three primary powers necessary for trust management: accounting, investment management, and making distribution decisions. Under Iowa’s old trust laws, it was common for one trustee to hold sole responsibility of all three powers. Additionally, corporate trustees managed risks associated with these responsibilities by developing policies that limited investment options and distribution options.
The updated Iowa Trust Code allows for a directed trust structure, which means powers can be divided among several trusted advisors. This flexibility allows a family to give trust powers to those who are in the best position to exercise them, consistent with the family’s estate plan. Here’s an overview of the three powers a family can assign.
The Investment Trust Director
The Investment Trust Director tells the trustee which assets to hold and decides when to buy and sell investments. The person you appoint to this role can be any trusted individual, including the grantor, a family member, or any other person you look to for assistance managing assets in the trust. This may also be an advisory firm or a group of individuals comprising a committee.
The trustee no longer needs to manage the investments within the trust and can instead take direction from the Investment Trust Director. This further allows a trust to better manage investments that a corporate trustee may not be willing to accept, such as concentrated positions, unique assets, real estate, and the family business.
The Distribution Trust Director
The next role the updated Iowa statute creates is the Distribution Trust Director. Traditionally, the sole trustee would receive and respond to all requests for distributions, making decisions on requests that are left to the trustee’s discretion. But certain family circumstances and distribution decisions may be handled more efficiently by a trusted advisor who is closer to the situation. If you appoint a Distribution Trust Director, you can empower a person or committee who knows the family well, understands unique family dynamics, and perhaps is more in tune with the intricacies of a family’s estate plan.
The person you appoint as Distribution Trust Director can be any individual you trust. Ideally, this person should be a neutral party with no conflicts of interest. Families generally do not appoint the grantor or another beneficiary in this role, as they do not want the person in the position of making distribution decisions being seen as benefiting themselves.
Having a Distribution Trust Director can increase the efficiency of trust management and tailor the management to each family situation. This is particularly helpful when there is a trust beneficiary with significant need, mental health, or addiction issues that impact distributions decisions. Read this article to learn more about the role of a Directed Trust Director.
The Trust Protector
Trust planning can establish structures intended to last across two lifetimes. However, within that time, there can be changes to tax laws, the economy, and family dynamics as new generations become beneficiaries. The Trust Protector role is important as it can be empowered to modify the trust for tax purposes, adjust beneficiary interests, replace trustees and trust directors, change which state’s laws apply to the trust, and appoint successors to each role designated in the trust. Families commonly appoint a trusted attorney to this role.
The updated Iowa Trust Code includes a clear definition of the Trust Protector role and the responsibilities that may be assigned to this role. There are several powers listed in the statute, but the drafting attorney is able to pick and choose the powers that are necessary for each family situation.
When these roles are separated, there must be a trustee to carry out administrative duties, including maintaining custody of assets, processing transactions directed by other advisors, and providing tax and accounting reports. Bankers Trust is uniquely positioned to serve as a directed trustee in such situations. Bankers Trust has managed directed trusts since 1996 and is familiar with the planning process that creates an efficient and easy-to-manage structure. Learn more about how Bankers Trust can help ensure your family’s trust is managed and directed in a way that best suits your complex needs.
Bankers Trust Company and its affiliates and their representatives do not provide tax or legal advice. You should consult with your tax and legal advisors regarding your unique situation and needs.