Georgia is the first state in the nation to enact sweeping UDTA trust law changes, centering primarily on “directed trusts”, with these changes effective July 1, 2018 (I refer again to “UDTA” at the end of this post). These new laws are under O.C.G.A. Sections 53-12-500 thru 506. I will be providing brief posts in the near future about certain aspects of these changes. The “directed trust” is the current, progressive approach around the country for optimal trust planning.
The essence of what “directed trust” means is that the trustee of the trust, or even a named non-trustee advisor (called a “trust director” under the new Georgia law), can direct others — who each then become “directed trustees” — to handle certain aspects of the operation of the trust. For example, the trustee can direct an investment trustee to handle the investment management of the trust assets. Or, as another example, the trustee can direct an administrative trustee to handle the administration of the trust.
In other words, the trustee alone does not have to carry the burden and liability for all trust functions. This team approach using other directed trustees enables the trustee to carve up the trust responsibilities, sometimes referred to as à la carte trust administration.
Below are a handful of my initial, brief comments about directed trusts for this first blog post:
(1) I really like Georgia’s statutory endorsement of directed trusts. Especially facing inescapable, impending aging, we and our families need a team approach for the care, protection, and oversight of our assets and affairs. I am not a fan of empowering only one individual to handle all of these matters, even if that one-person is a family member. There needs to be team input, and corresponding checks and balances where the team members each have a more independent view of the team’s efforts. And, certainly in some cases, a trusted family member can be the trustee with the power to put in place these other directed trustees;
(2) My general take on these new Georgia directed trust laws is that each team member (that is, each directed trustee) is subject to a fiduciary standard and liable for breach of trust if committed in bad faith or with reckless indifference to the interests of the trust beneficiaries [see, e.g., Georgia O.C.G.A. Section 53-12-303, captioned “Relief of liability”]. In other words, each directed trustee has to act with a fiduciary duty to the trust beneficiaries. This enhances the protective benefit of the team approach;
(3) Elder financial abuse is skyrocketing. For this reason, I strongly recommend families presently develop a relationship with a trusted, competent investment advisor who can help oversee the family’s investment assets. And, as needed, that trusted investment advisor can be, or later become, the family’s directed investment trustee. This advisory oversight, coupled with the above fiduciary duty standard and the now-stricter FINRA rules that address the financial exploitation of seniors, helps provide another team-member set of eyes and ears alert to the threat of financial abuse and fraud, etc.;
(4) These new Georgia directed trust laws are modeled after UDTA (the “Uniform Directed Trust Act”). These new laws are very dense, and appear well-drafted and comprehensive. But, easy, quick, no-thought, simple reliance on uniform laws can blind the lawyer drafting the trust. Even with these progressive laws, there needs to be artful trust document drafting so as to take advantage of these directed trust provisions, but without leaving unintended gaps or ambiguities in the trust document that cause problems down the road. Of course, artful drafting has always been the case with virtually any trust document.