by Nicholas C. Lozito – In an effort to modernize Connecticut’s trust laws, Governor Ned Lamont enacted comprehensive changes which went into effect on January 1 of this year. Among these changes was the adoption of Connecticut’s version of the Uniform Directed Trust Act (UDTA). Ultimately, the Act brings Connecticut in line with the modern trend of states providing greater flexibility to those desiring to establish trusts in Connecticut.
Connecticut now expressly permits the creator of a trust (known as the “Settlor”) to appoint one or more trust Directors to carry out certain duties traditionally reserved solely to the Trustee. For example, the Settlor may appoint an Investment Director with the sole authority to make investment decisions or a Distribution Director to decide when and how distributions should be made. In this context, the Trustee’s job is mostly limited to executing the Directors’ instructions and carrying out routine tasks like preparing accountings and filing tax returns.
The management structure of these “Directed Trusts” may be advantageous when trust assets are highly-concentrated or non-diversified. Here, an institutional or corporate trustee may be unwilling to accept the relatively high risk of loss inherent in such an appointment, while the appropriate Investment Director may be better suited to manage this risk.
Similarly, selecting the appropriate trust Director may be desirable when the proper management of trust assets requires specialized expertise, such as when a trust holds unique assets like closely-held business interests or collectibles.
Prior to the passage of the Act, it was unclear whether Connecticut courts would recognize the validity of Directed Trusts. Settlors desiring to appoint one or more trust Directors would often form Directed Trusts in jurisdictions where they were expressly permitted (e.g., Delaware). With the passage of the UDTA, Connecticut residents or residents of neighboring states may now join the trend of modern trust administration by establishing Directed Trusts in Connecticut.
If you or someone you know would like more information on establishing a Connecticut Directed Trust, please contact one of the Trusts and Estates attorneys at Chipman Mazzucco Emerson LLC.