Trust Investment Control

Historically, one fundamental duty of a Trustee is to control and manage the assets of the Trust. Hundreds of years ago this meant land, chattels, livestock, crops, and rents. Today, while those assets can still be placed in Trust it is more common for a Trustee to be responsible for a portfolio of financial assets. Regardless of the assets, the Trustee was always held accountable for protecting and investing the Trust. Until recently.
Today an increasing number of states have enacted laws allowing the creation of a Trust that separates out the investment responsibility (and liability) from the other responsibilities of a Trustee. Here are three variations:

Directed Trustee.
In certain states (e.g. Delaware, Illinois, just recently Texas), their Trust law allows a Grantor to create a Trust that names a Trustee who is to follow the direction of an Advisor or Committee on all investment decisions. Because the traditional law of Trusts will hold a Trustee liable for the failure to properly invest the Trust, a directed Trust will also provide robust protections for the Trustee when following investment directions. Under these laws the Trustee has no duty to review the investments, asses the quality, or to warn the beneficiaries of any under-performance or loss of value. However, the Trustee usually still has some overall fiduciary obligation to ensure that investment instructions do not violate any terms of the Trust.

Excluded Trustee.
In some states like Florida they arrive at the same destination by a different route. Here the law will allow for a Trust to be drafted with an "Excluded Trustee". The Trust must have at least one more Trustee with who will have authority over the investments of the Trust. The Excluded Trustee will have co-fiduciary responsibility over all other aspects of the Trust (e.g. distributions), but will be excluded - and protected - from all investment decisions. By being excluded, the Trustee will also be protected from any possible liability relating to the investing of the Trust.

Delegated Trustee.
Again, certain state laws will allow for a formal delegation of responsibility by the Trustee to an investment manager/broker/advisor. It should be noted the law of Trusts in most states allows for a Trustee to delegate certain functions like investment management BUT the Trustee retains responsibility (and therefore potential liability) for the selection of an appropriate investment manager, and the ongoing oversight of that manager. If the Trustee cannot prove the hiring and ongoing oversight of the manager was prudent, the Trustee could be liable for poor investment performance. In states like South Dakota their Trust law will allow a Trustee to formally delegate (usually at the request of the family) the investment management of the Trust to an investment manager, and with the delegation the Trustee will be relieved from the usual oversight responsibility and from any related liability. Usually this formal delegation will require the all beneficiaries to sign off agreeing to the delegation and to hold the Trustee harmless from any investment losses.

~My Trust Co Staff
Every Good Estate Plan Deserves Great Administration.