New Laws Herald New Trust Opportunities in the Northwest
Washington State Allows for Directed Trusts
Greg Bowman, Vice President, Finance & Business Development
New trust laws executed in Washington State this year open up new opportunities for trust services. This newsletter will provide an overview of the historic change and how it will expand the landscape of trust administration in the Northwest.
Historically, trustees are assigned with complete control and liability
It all began in the Middle Ages in England when, for example, a knight was to embark on a perilous journey,
and he needed someone to manage his real estate should he not return from battle. He could not convey title to the land, but he could convey the “use, trust or confidence” to another individual – and with that impetus the practice now known as trust administration was born.
The English colonists brought trust laws to America and continued the centuries-old trend that held the trustee to the highest duty of good faith and loyalty to the principal. The trustee was ultimately responsible for all of the property
in the trust with a duty to invest it prudently.
Directed Trust allows for the separation of certain duties to third parties
Many states, such as Delaware, have been revising trust laws to create what is commonly called “directed trusts,” the single most fundamental change in trust laws since the Middle Ages. With new laws that went into effect July 24, 2015, Washington State now allows for the use of directed trusts.
In summary, a directed trust allows a person creating a trust to direct specific duties of the trust to a third party, rather than conferring all authority and duties to a trustee.
Before this law, trustees could retain specialists to assist with investments, farm management, medical issues, etc., but the trustee was always responsible and liable for the decisions made. It is now possible to have specific duties (and liability) completely shifted, or “directed” away from the trustee to a third party – called a “statutory trust advisor.” Specific provisions that clearly describe the roles of the trustee and the third party must be included in the trust document. Think of this new law
as providing an additional option for people creating trusts.
Why is this new law good for the Northwest?
This law puts Washington State on equal footing with states like Delaware and North Dakota which have previously enacted laws to allow for directed trusts. Washington is the first state in the Northwest to adopt directed trust laws. Given our firm is located in Washington, we can take advantage of these laws for clients across the Northwest – regardless of where clients live or where trust assets reside. There have been literally billions of dollars of trust assets leave the Northwest simply because of a more favorable environment for trust administration elsewhere.
However, in outsourcing the trust administration to faraway places, clients were giving up local professional management of their trusts; things like collaborating with care managers, visiting the beneficiaries in person, conducting inspections of real estate, monitoring drug testing, working with local professionals, etc. Northwest Trustee & Management Services can now provide local trustee services throughout the Northwest to those who desire to use directed trusts.
Why would people want to create a directed trust?
Here are just a few examples of when it may be appropriate to consider using a third party to act as a statutory trust advisor in addition to the trustee:
- A family member wants to remain in control of a privately-held family business.
- The grantor wants to name a specific investment advisor in the trust document.
- An individual has specific expertise to manage and run a farming operation.
- A third party is best placed to manage all real estate held inside a trust.
- The grantor of the trust wants to retain a large concentration of publicly-held stock.
There may be several people listed in the trust document to act as a statutory trust advisor, and each would be assigned specific management duties which are governed by SB5302, Section 6 of the new law. This Section provides that this statutory trust advisor “has a power or duty to direct, consent to, or disapprove an action, or has a power or duty that would normally be required of a trustee.” In addition, the statutory trust advisor “shall have a fiduciary duty with respect to each power to act in accordance with the terms and purposes of the trust and solely in the interests of the beneficiary” [SB5302, Section 6, (4)(a)].
Our goal is to be your directed trust choice.
With this historic change in our trust law, no state trust income tax, and other favorable trust laws, Northwest Trustee & Management Services is now able to offer a much more appealing suite of services to a wider client base. When the option for a directed trust is desired, it is now possible to receive the best of both worlds – favorable trust laws and a trustee focused on serving beneficiaries with our high standard of service. We are excited for this new opportunity and finding a renewed energy to provide professional trust and estate management services using our core values of compassion, diligence, professionalism, and integrity.
Print Date: Fall 2015