Delegated Trusts
South Dakota has some of the better "delegated" trust statutes. South Dakota's unique trust laws allow a trustee to delegate certain responsibilities to other professionals and/or co-trustees. Typically, "delegated" trusts involve the delegation of investment management.
"Delegated" trusts are typically existing irrevocable non-South Dakota trusts, which change situs to South Dakota for the state income tax savings, but generally maintain their state law provision for construction and validity.
The trustee of a "delegated" trust is generally allowed to delegate its investment responsibility to one or more qualified investment managers, pursuant to the trust document and/or outside agreement. The trustee generally has investment discretion under the terms of the trust instrument, which in some cases can be delegated to a co-trustee or trust advisor. Alternatively, delegation can generally be made directly to one or more investment professionals.
Unlike the delegated trust, the "directed" trust vests control for the investing with someone else (i.e., the investment committee). Consequently, with a delegated trust, the delegating trustee has responsibility for due diligence in selecting investment advisors as well as monitoring their performance. These two requirements are not necessary for directed trusts as long as the trust document is being fulfilled.
All "delegated" trusts are generally invested pursuant to the provisions of the trust document as well as an agreed upon Investment Policy Statement with the trustees and investment managers/advisors.
Delegated fees are reasonable, but are slightly higher than "directed" trustee fees owing to the slightly increased risk incurred as well as the due diligence and monitoring responsibilities. Additionally, a trustee may desire exoneration language (within the trust document and/or by separate agreement). A delegated trust can generally be reformed or modified to a
Directed trust if desired. This generally reduces fees and provides more flexibility.
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