Pennsylvania’s New Directed Trust Act
Selecting a trustee having the skills, experience and time necessary to manage a trust can be a client’s most daunting task. Pennsylvania just enacted a statute that will make that task easier and position Pennsylvania more competitively.
Part of Act No. 64 of 2024, the Directed Trust Act will take effect mid-October and enable the person who creates a trust to appoint a non-trustee to direct certain aspects of a trust’s administration. The most common settings are these:
- A client wants an investment manager who has served the family well to continue to direct the family’s investments after the client’s death. However, the investment manager lacks the legal authority, employer’s permission, expertise or time to accept the full plate of a trustee’s duties
- No trustee candidate will accept responsibility to oversee a family business. The client’s colleague or business advisor is willing to do that, but not willing to serve as a trustee
- A trust beneficiary is disabled, poorly motivated or easily influenced, but responds well to a particular family member or friend who is willing to guide the trustee in making distributions from the trust that will best serve the beneficiary
- A client is willing to allow a close friend, colleague or advisor to modify the terms of an irrevocable trust to respond to changes in the client’s family and tax laws. The client may not reserve those rights to him/herself without adverse tax consequences
The concept common to each of these applications is that a person who is not a trustee may direct particular aspects of the trust’s administration. That person would become a “trust director” and hold a “power of direction” under Pennsylvania’s new statute. The trustee would be a “directed trustee” as to matters the trust director controls.
The Pennsylvania Directed Trust Act would clarify these relationships by defining the responsibilities and potential liability of both trust director and directed trustee. Fiduciary duty, which is the protection a trust provides to its beneficiaries, would follow the assignment of tasks. For example, a trust director for investments would have fiduciary responsibility to manage the trust’s investments and the trustee would not be liable for following the trust director’s mandates absent “willful misconduct.” “Willful misconduct” is defined as “intentional conduct that is malicious, designed to defraud or unconscionable,” and excludes “mere negligence, gross negligence or recklessness.” This is similar to the standard in Delaware.
This statute would follow the Uniform Directed Trust Act published by the Uniform Law Commission in 2017 but clarify and augment several of its concepts. Pennsylvania is now among 20 states to have adopted some form of the Uniform Act. Pennsylvania’s version was a collaborative effort by both the Pennsylvania Joint State Government Commission’s Advisory Committee on Decedents’ Estates Laws and the Pennsylvania Bankers Association. It will provide Pennsylvanians with an additional reason to keep their trusts in Pennsylvania and resort to our courts if there are questions or disputes. To learn more, please contact any member of our Wealth Planning, Trusts and Estates Group or the Stevens & Lee attorney with whom you regularly work.
