In July 2024, Pennsylvania Governor Josh Shapiro signed the Pennsylvania Directed Trust Act, Senate Bill 1231 (now part of Act No. 64 of 2024, sponsored by Senator Lisa Baker), into law, making Pennsylvania the 20th state to adopt a directed trust act following the Uniform Directed Trust Act published by the Uniform Law Commission in 2017.
Directed trusts allow the powers traditionally held by a trustee to be bifurcated and shared with another person or entity known as a “trust director” who directs the “directed trustee” on certain administrative matters.
Many Pennsylvania practitioners have been drafting what are essentially directed trusteeship provisions into trusts for years without any clear statutory law allowing such directed trusteeships or clarifying the parties’ roles and responsibilities in court adjudications.
This bifurcation of the traditional trustee role is often used to enable:
- a trusted third party to oversee closely held business or other unique trust assets a traditional trustee may not be equipped or efficiently able to handle;
- an investment advisor to continue to manage the trust assets while a trusted friend or family member, for instance, oversees trust distributions;
- an independent third party better equipped in certain administrative nuances (such as taxation, business interests, special needs, public benefits, or other matters) to lessen the burden on the directed trustee for cost or other administrative efficiencies.
Pennsylvania’s adoption of its Directed Trust Act expressly allows a trustee’s powers to be bifurcated or shared, thereby statutorily condoning directed trusts and providing a framework for their interpretation and judicial enforcement. The Act clarifies the directed trustee and trust director relationships by defining their responsibilities and liability and confirming that fiduciary duty follows the bifurcated task absent “willful misconduct,” which is “intentional conduct that is malicious, designed to defraud, or unconscionable,” and excludes “mere negligence, gross negligence, or recklessness.”
For example, a trust director of a trust’s investments would have the fiduciary responsibility to manage the trust’s investments, and the directed trustee would not be liable for following the trust director’s investment management mandate absent willful misconduct, such as fraud.
Pennsylvania’s Directed Trust Act modernizes Pennsylvania law to facilitate and encourage the selection of appropriate trustees in Pennsylvania, with the goal of making Pennsylvania a competitive home for trusts and their administration.
Pennsylvania’s Directed Trust Act was a collaborative effort by both the Pennsylvania Joint State Government Commission’s Advisory Committee on Decedents’ Estates Laws and the Pennsylvania Bankers Association.
