by Rebecca Klock Schroer
Colorado recently enacted a set of statutes regarding directed trustees, with an effective date of August 6, 2014. Colo. Rev. Stat. § 15-16-801 et. seq. A directed trustee arrangement allows for the division of obligations and liabilities between two or more fiduciaries.
There are many circumstances where a directed trustee arrangement could be beneficial. For example, a settlor could appoint a corporate trustee as trustee of a trust and appoint a family member or other individual as a trust advisor to make certain decisions. Colo. Rev. Stat. § 15-16-803 lists possible duties and powers of a trust advisor and includes:
(a) The exercise of a specific power or the performance of a specific duty or function that would normally be performed by a trustee;
(b) The direction of a trustee’s actions regarding all investment decisions or one or more specific investment decisions; or
(c) The direction of a trustee’s actions relating to one or more specific non-investment decisions, including the exercise of discretion to make distributions to beneficiaries.
The trust advisor can make decisions regarding specific issues, such as investments or distributions, while the corporate trustee retains the remaining obligations of a trustee.
It is important for estate planners to consider the directed trustee statutes when drafting estate planning documents. The statutes provide primarily default rules that can be altered by the provisions of a governing instrument. For example, Colo. Rev. Stat. § 15-16-804 provides that the provisions of a trust governing removal of a trustee will also govern the removal of a trust advisor.
A directed trustee arrangement is different than trustee delegation and different than the relationship between co-trustees. When a trustee delegates duties to others, the trustee has a duty to monitor and is potentially liable for the actions of the person to whom the trustee has delegated. A co-trustee retains liability for all trustee duties and also potential liability for the actions of a co-trustee. Under a directed trustee arrangement, a trust advisor can take on certain duties and the trustee does not have a duty to monitor or any liability for the actions of the trust advisor. In addition, the trustee and trust advisor have a duty to inform each other only to the extent necessary to fulfill their duties. This arrangement makes it much easier for corporate trustees to enter into a trustee/trust advisor relationship without having to worry as much about liability.
Hopefully the flexibility and clarity of the directed trustee statutes will encourage more trusts to be administered in Colorado.