Consider a family preparing to transfer a $15 million portfolio of Brooklyn commercial real estate into a trust for the next generation. They want a corporate trustee to handle tax filings, legal compliance, and distribution mechanics. But an immediate point of friction arises. The corporate trustee—bound by strict fiduciary diversification rules—will likely want to liquidate the physical properties and buy broad market index funds. The family built their wealth in real estate and intends to keep it.
Under older estate planning models, this family had to make a difficult choice. They could keep the properties and name an unqualified family member as trustee, risking administrative mistakes and personal liability. Or, they could use the institutional bank, gain administrative safety, and lose the family business entirely. Neither outcome represents prudent generational planning.
We no longer have to make that compromise. By establishing a directed trust, we can legally separate the administrative burden of running a trust from the actual investment decisions.
The New York Uniform Directed Trust Act
For decades, families seeking to separate trust administration from investment control had to move their assets to out-of-state jurisdictions like Delaware, South Dakota, or Nevada. New York trust law simply did not accommodate the strict division of fiduciary labor.
That changed in late 2023 when New York enacted the Uniform Directed Trust Act under EPTL Article 7-A. This statute modernized our state’s approach to wealth transfer, allowing a grantor to appoint a “trust director” who holds the power to direct the trustee on specific matters. Crucially, the law protects the administrative trustee from liability for following the director’s instructions, provided there is no willful misconduct.
This statutory protection is exactly what institutional trustees needed. Because the law legally shields them from the consequences of the director’s investment choices, banks and trust companies are now willing to hold concentrated assets, closely held business shares, and real estate inside a New York trust.
Splitting the Fiduciary Atom
In a traditional setup, the trustee wears every hat. They invest the money, file the 1041 tax returns, decide when a beneficiary needs a distribution for health or education, and shoulder all the liability for those choices. A directed trust unbundles these jobs into discrete, deliberate roles.
When we architect a directed trust, we typically divide the labor among three distinct parties:
- The Administrative Trustee: Usually a corporate entity or trust company. They hold legal title to the assets, maintain the records, issue statements to beneficiaries, and handle all tax preparation. They do not pick the stocks, and they do not judge the beneficiaries.
- The Investment Director: The person or committee holding the authority to buy, sell, and manage the trust assets. This could be the family’s long-time chief financial officer, a close colleague, or a designated wealth manager.
- The Distribution Director: The individual tasked with deciding when and how much money is disbursed. This is often a family member or close friend who understands the grantor’s values and knows the beneficiaries personally.
This division of power creates a highly intentional structure. The paperwork is handled by professionals who do it every day, while the deeply personal decisions regarding family money are handled by people who actually know the family.
Protecting Unique Assets and Family Values
The practical applications of EPTL Article 7-A extend far beyond commercial real estate. In my practice, we frequently use directed trusts to hold shares of operating family businesses. A founder transferring shares to their children might want to remove the value of the business from their taxable estate, but they absolutely do not want a bank trust officer voting those shares or sitting on the company’s board of directors.
By naming themselves or a close colleague as the investment director, the founder ensures the business continues to operate without corporate interference, while the shares themselves remain protected inside the trust wrapper.
Similarly, directed trusts are invaluable for managing concentrated public stock positions. Under the New York Prudent Investor Act (EPTL §11-2.3), a traditional trustee has a duty to diversify assets to minimize risk. If you fund a trust with $10 million of a single company’s stock, a traditional trustee will almost immediately begin selling it off. If your explicit goal is to hold that specific stock for the next fifty years, a directed trust forces the institution to retain the asset without fearing a lawsuit from unhappy beneficiaries down the line.
The benefits extend to the distribution side as well. When dealing with beneficiaries who struggle with addiction, creditor issues, or poor financial literacy, having a family member act as the distribution director provides a level of nuance that a corporate committee simply cannot match. A family member can demand a drug test, verify a lease agreement, or assess a business plan before releasing funds, applying the grantor’s values in real time.
Building in Generational Adaptability
An estate plan meant to last for decades cannot be rigid. Circumstances change, advisors retire, and relationships evolve. To prevent the trust from becoming obsolete, we typically incorporate a trust protector into the directed trust structure.
The trust protector is an independent third party holding specific, limited powers—most notably, the power to fire and replace the administrative trustee, the investment director, or the distribution director. If the corporate trustee’s fees become unreasonable, or if the investment director’s performance falters, the protector can swap them out without requiring a lengthy and expensive petition in Surrogate’s Court.
This mechanism keeps the professionals accountable. It prevents the family’s wealth from becoming a captive account at a specific institution. Stewardship.
For individuals who already have irrevocable trusts in place suffering from poor institutional management, New York’s decanting statute (EPTL §10-6.6) often allows us to pour the old trust into a newly drafted directed trust—retroactively applying these modern structural advantages to existing assets.
If you are hesitant to fund a trust because you do not want to surrender investment control to a corporate entity, or if you hold unique assets that require specialized management, schedule a trust architecture review with our office. We will examine your specific holdings and map out exactly how a directed structure can separate the administration of your wealth from the control of your legacy.
