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00:00:00 so one of the questions that I get often related to trust planning is who should serve as a trustee of the trust and the very short answer is someone who’s qualified so let’s talk about what that actually means and what that can look like so let’s get into it so what does it mean for someone to be qualified when it comes to serving in the truste role so so first the trustee is the person or the entity that’s responsible for admin mining the trust um and I’ll talk about what that means here in a second so as the name kind of
00:00:36 implies it needs to be someone that you trust but not only someone or or an entity that you trust but it needs to be someone who’s qualified so um there’s a certain background or technical Acumen that I think lends itself to being a trustee of a trust but you you need to think about it in terms of what are the responsibilities of the trustee so the trustee kind of break it down to three different things first it’s someone who or again an entity I’ll just keep saying someone but it could be a corporate entity but it’s someone who
00:01:09 can administer the trust that means make sure that the trust is being administered according to its its terms according to the provisions that you find inside the trust it also would include putting together tax documents or tax returns or or um or sending out what’s called crummy letters I won’t describe what that means but there’s just different things that a person or someone has to do as trustee something else along with administering it is also distributions they’re in charge of distributions to the beneficiaries so
00:01:42 the distributions would be you know whether it’s income or it’s principle um the assets that were placed inside the trust or accumulate inside the trust whether there’s there’s some distribution Provisions inside the trust and the trustee is in charge of that then lastly the management of the assets as well so it could be a brokerage account it could be an operating business cash accounts different types of things Bitcoin uh oil and gas business Ranch Farms Etc so a lot of different things can go into that but
00:02:13 the point is the trustee is someone who has a skill set to be able to do all those different things so there’s going to be tax consequences accounting consequences legal consequences and someone is be able to wrap their head around that entire thing some trusts are more difficult to administer and manage the other trust so you know it’s some are a little simpler than others so that’s something to consider but because of all the different nuances and the different legal accounting tax implications that are related to
00:02:44 administering a trust you have historically seen a trustee uh a a a trust company named as trustee and so the reason for that is usually they have a team of people who have these different backgrounds that I just mentioned and so a Trust Company can be a standalone trust company or it could be a trust company that’s associated with a bank we see a lot of those um and again they have this background to be able to do all these different things all these administer and adhere to all these responsibilities that they have to
00:03:16 carry out the terms of the trust so that’s why it needs to be someone who has a qualified background and not a lot of people not a lot of lay people have the background to be able to do uh to serve as truste and to serve as a trustee really well and so you’ll often see parents who leave a trust to their children it may be one child or multiple children but they’ll name one the children as trustee and that can work um but it could lead to family problems family squabbles that you know sisters brothers
00:03:49 get upset with the one sibling who serve as trustee because they’re not doing this right or that right or what the beneficiary perceives is right so there’s other things also that you know if if the trustee uh let certain things fall through the crack it could compromise the Integrity of the trust from a tax perspective or even an asset protection perspective so all of a sudden maybe you did something incorrectly um and now there’s a negative income tax consequence whether to the trust or to the beneficiaries or
00:04:22 maybe there is a negative estate tax or generation skipping tax consequence a wealth transfer tax consequence so if you don’t have that background or you’re not talking to the right people um to give you Insight then you could have you know a serious tax issue um the other thing is asset protection so if you’re not administering the um distribution and managing the the assets of the trust correctly then you could compromise the asset protection of of the trust and if you’re interested in asset protection
00:04:54 there I have videos about that so check out some of the other videos but I won’t go into detail about how all of that works just know there could be negative tax consequences and asset protection consequences so in the last 20 years we’ve seen more uh more modernization and updates to to trust laws than we’ve seen in the last 200 300 maybe even longer years um and one of these one of these modernizations has been what’s called um directed trust and so we’re going to talk about what a directed trust is and I have a slide that I want
00:05:29 to share with you um because I think it’s it’s helpful to see all the different roles that you can actually have in an irrevocable trust but a directed trust is actually the bifurcating or trifurcating of the traditional trustee responsibilities um it’s part in parceling out all of these responsibilities that one person or one entity trust company has been responsible for um adhering to or or carrying out rather so when we share this video let me share this slide with you and then we can kind of get into what this really
00:06:04 looks like um so this is a presentation that I’ve put together that actually discuss directed trust and this slide in particular is dedicated to directed trust structures um that are allowed under South Dakota law a lot of different states do have directed trust laws and directed trust is just an irrevocable trust but a directed trust describes how that irrevocable trust is set up or how you part and parcel those different trustee responsibilities so you’ll see in the middle here that we set up a dynasty trust it could be a
00:06:37 dynasty trust a descendants trust inh Heritage Trust just an irrevocable trust that you’re setting up for the benefit of someone else typically um parents are going to set up this type of trust for the benefit of their children and so you’ll see the dynasty trust in the middle of the of the page here the middle of the slide then we have five different roles here family advisor trust protector distribution advisor investment advisor and administrative trustee so with a South Dakota trust and I have other videos about why I love
00:07:11 South Dakota and why it’s the best trust jurisdiction in the United States um and why clients in other jurisdictions even abroad consider South Dakota I won’t go into detail about that here but this is one of the reasons why um not the exclusive reason why but one of the reasons why because the person setting up the trust now has more flexibility and control of the trust than they’ve ever had in the past kind of the knock on an irrevocable trust has historically been that once you you set it up you you
00:07:44 set it and you kind of forget it um that you’re locked into it it doesn’t provide much flexibility but with the directed trust structure you really do have a lot of um a lot of flexibility so with the administrative trustee I’ll start there and we’ll kind of work our way around so the administrative trustee to have a legitimate South Dakota trust you need to have a resident Trustee of South Dakota whether that’s an individual or that’s a trust company so most people don’t know someone in South Dakota so
00:08:14 they use an administrative truste they use a Trust Company what’s unique about the trust companies in South Dakota compared to a lot of other states is that the trust companies there a lot of them I don’t know if it’s necessarily most of them but a significant amount of them don’t actually um hold assets they’re non depository trust companies so they’re not interested in managing your assets so your traditional trust company is going to charge a percentage of assets under management so maybe it’s 1% of
00:08:43 whatever assets you have held in the trust so those fees can get they can become pretty significant most administrative trustees will charge a flat fee um each year and they’re only charging for that administrative function that they serve so the trustee technically owns the the assets of the trust um because that they’re the the the person or entity that’s designated as trustee um so and you’ll see here I have some bullet points they prepare and uh trust documents they maintain bank accounts they prepare trust statements they
00:09:20 actually make the um distributions to the beneficiaries and they receive any contributions so anytime that someone’s making gifts to the dynasty Trust then they’ll make it to the administrative trustee um the administrative trustee actually takes direction from the distribution advisor and the investment adviser and you can kind of you can kind of consolidate some of these responsibilities sometimes you’ll see the administrative trusty also serve as the distribution advisor the distribution advisor and we’ll jump over
00:09:50 to that one and you see these three roles directly underneath the dynasty trust so the distribution advisor and the distrib advisor and investment advisor can be structured as committees you can have more than one person in that role um but the distribution advisor is simply responsible for deciding when to make distributions to the beneficiaries they don’t actually you know hand the check or wire the money over to the beneficiary the administrative trustee is in charge of that but the distribution adviser tells
00:10:22 the administrative trustee when to make that distribution and the administrative trustee has to do that so you can name a family member you could name multiple family members you could create again a committee where you’re having maybe trusted advisers serve on a committee with maybe other family members so there’s different ways to approach that the point is maybe you’re taking that in giving it to people who really know the beneficiaries and know the beneficiaries well and know when they might need those
00:10:50 distributions the next is the investment advisor um and this can be your financial advisor your Wealth Management advisor it can be your actual investment advisor and these these I should note that these roles are actually defined by law in South Dakota so investment advisor is the actual role that’s defined that’s the title that South Dakota law gives to this particular role but this is the person that’s in charge for managing the asset so a lot of times this most significant assets in a trust
00:11:25 will be a brokerage account in or you know Investments Financial Investments and um families will name their investment adviser or their wealth management advisor their financial adviser in that role so the kind of the idea behind that is the family is then able to continue to work with the advisor that they’ve had a long-term relationship over many many decades now that many many decade relationship can become a multi-generational um relationship rather than going and using a trust company if you haven’t historically used
00:12:01 a Trust Company some clients will use a trust a Bank and Trust Company their entire lives and so you know that relationship will make sense for them over multiple Generations but if you haven’t done that then this directed trust structure can make a lot of sense for you um so we’ve talked to about the administrative trustee they take direction from the distribution advisor and the investment advisor um but again you’re putting the people in there that you trust most who you think are the best qualified uh specialist to serve in
00:12:30 those different roles next is a trust protector trust protector is that role um you cannot name someone who’s a family member and you can’t name someone who is subordinate to you meaning that they’re actually on your payroll like they work for you and you can’t do that because it compromises um the state ta estate tax issues um it will present state tax issues and then it would compromise asset protection so you want to make sure to name the right person the trust protector but that trust protector role
00:13:01 is really important because that’s what gives you flexibility with an irrevocable trust that trust protector can amend an irrevocable trust they can update the the provisions maybe there’s a change in trust laws or tax laws or family circumstances whatever it may be you may need to loosen distribution standards or maybe you need to tighten distribution standards um or maybe you need to assign assets in that original trust to a different trust that’s called decanting so all these different roles have a
00:13:32 fiduciary standard so they still have to act in the benefit in the in the best interest rather of the beneficiaries so all of these work together in in in one cohesive way and they kind of are a balancing act to make sure that one particular role doesn’t have significantly more power than another role that way there’s no abuses or anything like that um and you can include one thing I think that’s kind of interesting is that you don’t have to name a trust protector but you can go ahead and include trust protector
00:14:07 Provisions in your trust so you may not know the person that you want to name now but you can name them further down down the line or you can give someone the ability to name that trust protector further down the line the other role I should say this the trust protector distribution advisor investment advisor administrative trustee those roles do exist in States other than South Dakota the caveat is that not every state has welldefined laws around these different roles and what you might run into is
00:14:43 that um there might be too much legal risk for someone or an entity to take on serving in these different roles but because South Dakota has very strictly or very narrowly um written their law related to each one of these roles it’s very clear what you’re taking on and what your responsibility is and then you can further Define it in the trust document um some states they may not have directed trust laws but you still technically could do a directed trust the problem with that though is that the
00:15:25 trustee is going to be they’re going to because of common law and I won’t go into what that really means but because of common law the trustee in a jurisdiction that doesn’t have um directed trust laws or well-written directed trust laws that trustee is going to be responsible for the distribution advisor the investment adviser the trust protector the family advisor and no one wants to take on that responsibility of all these other actors that you’re naming whereas in South Dakota each actor is responsible for
00:15:57 their their exclusive actions you’re not responsible for anyone else so that’s why South Dakota is so important in this lastly I’m going to say something about the family adviser this family adviser role is unique to South Dakota and a lot of times you’ll see someone name their uh attorney or their CPA different type of adviser in this role and the family advisor really oversees all the other roles and you could name the same person in the family advisor role as you do say the distribution advisor role or the
00:16:29 investment advisor role you could even create a new entity a special purpose entity you can have a committee in that family adviser role but the point there is to have someone who can continue to be that main point of contact UM for the family and with the trust to make sure that the trust is being the the original intent of the trust is being is being carried out over multiple Generations so it just adds an additional layer of um expertise to to the directed trust so all of this together why why do
00:17:06 all of this again because it gives you the hand selected Specialists the hand selected professionals that you think are best at their jobs and know your family really really well and it takes it gives you more flexibility but it also takes away all of these different roles from your traditional Trust Company traditional trust companies can work for some people they work great for some families but for some families they’ve chosen not to go that route for one reason or another and this approach kind of allows for a
00:17:42 family office type of structure where you’re choosing your investment advisor you’re building out your trust protector role your distribution advisor the administrative trustee and maybe even a lot of people will name their family attorney as the as the family adviser it could be someone else but all of a sudden you have all of your different handpick uh professionals serving in all these various roles it gives the family a lot more flexibility it takes away the need to have one trust company that
00:18:11 decides everything and a lot of clients are really looking for that so it really is a matter of taking control and flexibility back into the client’s hands so when you’re looking at how to accomplish what you really want to accomplish in this type of directed trust structure it makes sense to look at Sou Dakota [Music]