Estate Planning with Directed Trusts under the Colorado Uniform Directed Trust Act
By Jeffrey B Kadavy and Dylan H Metzner
This article explains directed trusts and how they operate under the Colorado Uniform Directed Trust Act. It includes tips for drafting directed trusts and advising fiduciaries.
Estate planners are familiar with creating trusts to prudently manage and safeguard their clients’ wealth. Clients generally understand the benefits of a trust as a tool for achieving a host of planning goals. But many clients are averse to the idea of hiring a professional, non-family member trustee to manage their wealth, even though a professional may better serve their needs. In addition, attorneys often fail to advise their clients about the risks of appointing a non-professional trustee. Such risks include a trustee who steals from the trust, a trustee who fails to exercise independent discretion (and thus subjects the trust to estate or generation skipping transfer tax inclusion), and litigation initiated by beneficiaries who simply don’t like the family member trustee.
Directed trusts allow trust settlors to involve all fiduciaries who can best achieve their desired goals in the administration of their trusts. The CUDTA provides an efficient framework for establishing and administering directed trusts that integrates seamlessly into Colorado’s existing body of trust law. To ensure successful trust administration, practitioners are advised to draft trust instruments that clearly address the powers and duties of trust directors and directed trustees within the context of the specific trust they will administer.