Article by Jeffrey Schoenblum
Directed trusts are an extremely important development in trust law, indeed truly transformative, because they challenge what was presumed to be the “irreducible core” of the trust. That is, the trustee owes certain nonwaivable fiduciary obligations to the beneficiaries with regard to the management of the trust estate and also with respect to distributions.
*958 The directed trust in its radical format, as found to a greater or lesser degree in Tennessee, Nevada, South Dakota, and Delaware, represents a fundamental assault on this irreducible core of trust law because, with respect to investments and distributions, new actors, known as trust advisers (advisors) or directors, take the place of the trustee while potentially avoiding the same high level of fiduciary duty. As a result, the irreducible core is indeed reduced, even eliminated, resulting in a very different model of the trust. That model might be termed the “neo-trust.” While rooted in trust doctrine, it deviates from certain fundamental elements of the traditional trust in response to the demands of a large number of prospective trust settlors.
The radical directed trust laws of these “neo-trust” states ordinarily could be dismissed as localized responses from small states that are not leading centers of capital, with perhaps the exception of Delaware. However, they are quickly transforming into powerhouse centers of trust administration. How? Very simply—the conflict of laws.
About the Author
Jeffrey Schoenblum. Centennial Professor of Law, Vanderbilt University Law School.
Citation
97 Tul. L. Rev. 957