The model for a managing directed trustee (MDT) comes from organizations like family offices and private trust companies (PTCs) that evolved, in part, to support and coordinate a family's trustees and other financial services providers.
Family offices coordinate trustees and other participants in multi-participant trusts. Ideally, formal fiduciary support agreements are in place in which the family office agrees that, at the right times, it will provide participants the information they need to make the decisions for which they are responsible. The family office also records the decisions and implements them.
A PTC performs the same functions — but does so by bringing the participants into its committee structure, thereby bringing all of them under its corporate umbrella. Indeed, a PTC can provide the benefits of a multi-participant trust (multiple participants hand-picked by the settlor and other family members) even when the PTC, as trustee, is the only actual fiduciary.
But PTCs and family offices are only for the wealthiest of families. What, then, is the solution for settlors and beneficiaries of more typically sized family trusts?
Answer: the MDT.
As we envision it, an MDT is a directed trustee on steroids, but without the liability of the full trustee. MDTs must at least have the coordinating powers of a family office and perhaps also the supervisory powers of a PTC.
MDTs will probably usually be a corporate trustee. But professional advisors or individuals also might take on the role, so long as they have the skills to get the job done.
monitors and coordinates the activities of all trust participants;
provides each participant material information about the trust's assets, distributions, expenses and beneficiaries;
notifies each trust participant when he has a decision to make, inquires whether he has made it and records the decision;
identifies who will implement the participants' decisions;
assures that persons responsible for implementing a decision are aware it was made and what it was;
sets guidelines for timely decision making by participants with critical trust powers; and
assures and coordinates regular communications with the beneficiaries and settlor.
The MDT should be protected from liability for its coordinator role, by state law where it exists and, when it does not, by trust provisions.
To protect MDTs, drafters for multi-participant trusts should:
build on the state directed trust laws, especially those that authorize the directed trustee to confirm, record and report actions without assuming responsibility for trust outcomes;
limit the MDT's role to administrative actions that are within its authority and capability; and
eliminate MDT liability for results, and even for process failures, that depend on the actions of others.
Put an MDT in place, and we believe you'll improve all participants' performance and, thereby, reduce the risk of breaches of trust and the claims and litigation that often follow.