Modern trust laws, available only in progressive trust law jurisdictions such as South Dakota, have revolutionized trust formation and administration in the United States. Leveraging the sophistication of South Dakota’s modern trust laws, Bridgeford Trust Company delivers tremendous control and flexibility to settlors, beneficiaries, and their advisors through South Dakota’s industry leading modern trust laws, including Trust Protector, Directed Trusts, Decanting, Modification, and Reformation.
The Trust Protector concept is often used in conjunction with a Directed Trust. The inclusion of a Trust Protector allows the settlor, beneficiaries, and their advisors to modify and control many important aspects of the trust and provide direction to the trustee with respect to investment management, jurisdiction, and trust distributions. Acting as a “super trustee,” the Trust Protector concept enhances the control aspects of the Directed Trust because it provides for direction or restraint of powers of the trustee.
Reasons why a settlor may wish to appoint a Trust Protector include:
- Protectors allow for a great degree of flexibility when dealing with changes in circumstances, including both factual circumstances (death, premature divorce, previously unknown children) and legal changes (any legal changes, but most frequently changes to applicable revenue laws);
- The settlor may be concerned that the trustee may not pay sufficient attention to his wishes;
- The settlor wishes certain powers to be withheld from the trustees; or
- The settlor wishes a third party to act as a main point of contact between the beneficiaries and the trustees.
South Dakota’s Trust Protector statute is an example of one of the most robust trust statutes in the nation. Click here for more information on South Dakota Trust Protector statute, Title 55 – Fiduciaries and Trusts, Section 55-1B-6 – Powers and discretions of trust protector, which includes a specific list of powers available to be granted to the Trust Protector.
Click here for an informative discussion about the Trust Protector concept and how to incorporate it into a wealth plan.
Directed Trusts, only available in a handful of states across the country, including South Dakota, continue to drastically change the trust world through unbundling asset management and trust administration functions, putting control back into the hands of settlors, beneficiaries, and their advisors.
Through bifurcating liability, the Directed Trust model creates a legal framework allowing trustees and beneficiaries to work with asset managers and independent trust companies of their choosing.
For more information, including a detailed discussion around how the Directed Trust concept works as well as a video on the topic, please visit the Directed Trusts page on our website by clicking here.
Decanting, appropriately referred to as a “do over,” is essentially distributing assets from an irrevocable trust to a new trust with different, and presumably more desirable and flexible terms, leaving the unwanted terms in the original trust and not binding on the assets.
- Distribution of trust principal in further trust allows an irrevocable trust to evolve through Decanting to meet a family’s changing needs without court involvement.
- The concept of Decanting has become a very powerful tool for planners to modify irrevocable trusts and has emerged as one of the most progressive planning strategies available in dealing with irrevocable trusts and dynasty planning issues and can be applicable to both domestic and international trusts.
- Decanting also creates a streamlined option for easily transferring a trust from one state jurisdiction to another more favorable jurisdiction.
Many states do not have a Decanting statute and not all Decanting statutes are created equally. It is very important to evaluate the differences among the statutes when selecting proper situs for a trust. Click here for Attorney Steve Oshins’ “5th Annual Trust Decanting State Rankings Chart” for a more detailed and objective comparison of the Decanting statutes across the nation.
For a more detailed discussion about Decanting and how it modifies irrevocable trusts that were once considered unchangeable, click here for an informative video on the concept and how it works in the planning process.
South Dakota Family Advisor
South Dakota is the first state in the nation to enact progressive new legislation creating the South Dakota Family Advisor (for a definition of terms, reference 55-1B-1). The Family Advisor is yet another South Dakota modern trust law tool that delivers far more control to settlors of trusts, beneficiaries, and their advisors than ever before when used in conjunction with a Directed Trust.
The Family Advisor role, similar to the Trust Protector but acting as a NON-FIDUCIARY, has the power to modify, control, and participate in many important aspects of trust administration. Appropriately referred to as a “Trust Protector Light,” because of its non-fiduciary status and limited powers, the South Dakota Family Advisor is an excellent option for settlors of trusts and beneficiaries who may want family advisors such as attorneys, CPAs, or investment advisors to have some control and input over important aspects of trust administration WITHOUT elevating the position to that of a fiduciary, which carries with it heightened liability that may deter advisors from serving.
For more information about the South Dakota Family Advisor, including a detailed explanation of the powers that may be granted to the Family Advisor, click here.
Click here for a video discussion around the Family Advisor role and how it can be incorporated into the trust planning process.
Modification and Reformation
Modification and Reformation is another tool that progressive trust jurisdictions make available to advisors and their clients that allow them to substantially alter terms of an existing irrevocable trust, often without the need for Court approval.
It is important to note that Modification and Reformation both result in keeping the original trust, whereas Decanting results in the transfer of assets from an existing trust to a newly created trust. All of these tools have the potential to significantly change an irrevocable trust.
The modern trust laws highlighted above provide more control and flexibility to settlors, beneficiaries, and advisors than ever before and have truly revolutionized the trust industry relative to how trusts are created and administered. In light of these modern trust laws, available only in a handful of states, the trust world has become extremely dynamic with many more tools available to the well-versed planner to better serve clients through providing far more control and flexibility in the creation and modification of solid wealth and estate plans now and for generations to come.
Click here to read a white paper written by David Warren, Chairman of the Board of Bridgeford Trust Company entitled “Modern Trust Laws: Are Irrevocable Trusts Really Irrevocable?”