What Is a Directed Trust?

When you’ve decided to create a will or trust, you’ve already won half the battle. That’s because setting up a will or trust can be one of the most prudent financial decisions you’ll make in your lifetime. While you may be earning income and providing for your family, it’s always important to plan for the future, and that’s where wealth management comes in. You will need to decide what to do with your holdings when you’re ready to pass them to the next generation.

A trust allows you to transfer some or all of your assets to one or more of your heirs while bypassing long, drawn-out court processes involving probate and tax burdens.

We’ll explain more about directed trusts in further detail below.

What is a trust?

A trust is a type of estate planning that transfers assets from one person to another. It’s essentially a legal agreement that allows one person, the trustor, to give another person, the beneficiary, an asset. A trust is typically managed by a person known as a trustee.

There are several different types of trusts, and each has its own rules and stipulations, which is why you must find the right one for your needs. The type of trust agreement that should be created can depend on:

  • The type of assets that are being transferred
  • The asset’s potential to generate income
  • The amount of management the assets will require
  • The age of the beneficiary
  • Whether the trust will take effect while the Trustor is alive or after they die

What is a directed trust?

A directed trust is a type of trust that has recently become popular. In this agreement, there is a directed trustee in addition to the Trustor, trustee, and beneficiary. Directed trusts are typically used to handle investments and divide the responsibility for managing the trust between two people (the directed trustee and another designated trustee).

How does a directed trust work?

In a directed trust, the directed trustee is managed by other participants, such as financial advisors or a distribution committee, on matters relating to how the trust is executed. The directed trustee does not have the power to decide how the assets are managed and cannot advise or invest the assets for the beneficiary. They are in charge of handling specific tasks related to managing the trust and its income.

Who might need a directed trust?

A directed trust is primarily used for investment accounts when the asset or asset in a trust is likely to generate regular income, and some degree of administrative management is required. If you have stock that will yield dividends, an annuity, income property, or other assets that generate income, a directed trust may be the right option for you.

If you plan to divide up your assets and their revenue to your beneficiaries, a directed trustee can handle the distribution of that revenue and see that the initial investment is protected per the Trustor’s wishes and managed per their instructions.

Schedule an appointment now to get started!

If you do not know how to secure your financial future and future quality of life, at Misers Wealth Partners, we are the premier financial advisor in Tennessee. We offer customized financial advice tips for retirement planning that take your situation and circumstances into account to help you achieve your unique goals. Our passion is buoying clients by assisting them to attain clarity and confidence in decision-making and their future. Schedule an appointment now!

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