What Is a Directed Trust, and Should You Split the Trustee’s Job?

The short answer: a directed trust is a trust in which the document gives someone other than the trustee the power to make certain decisions, most often investment decisions or distribution decisions, and requires the trustee to follow that person’s direction. It is the formal, statutory version of what people informally call splitting or bifurcating the trustee’s job. New Jersey and Connecticut both have statutes that recognize the arrangement and, critically, relieve the trustee of liability for decisions it was directed to make. New York does not, which is why New York families who want this structure often form the trust under another state’s law.

This article explains how a directed trust works, what each of those states allows, the situations in which dividing the trustee’s role helps, and the drafting points that determine whether it works.

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What Does a Trustee Normally Do?

A traditional trustee does everything. It holds title to the assets, invests them, decides when and how much to distribute, keeps the books, files the tax returns, and answers to the beneficiaries. It is personally liable for doing any of those things badly. Our guide on who a trustee is and how to choose one describes what that role demands.

The problem is that the skills do not travel together. The person who best understands a disabled beneficiary’s needs is rarely the person best equipped to manage a portfolio. The corporate trustee with a strong investment department may refuse to hold a family business or a single concentrated stock position because doing so exposes it to liability under the prudent investor rule. And no professional trustee wants the job of deciding whether a grandchild’s request for a down payment is reasonable.

A directed trust solves this by dividing the decisions and assigning each to the right person, while keeping a single trustee responsible for holding the assets and running the administration.

How Does a Directed Trust Work?

The trust document creates one or more positions in addition to the trustee and gives each a defined power. The common ones are:

• Investment adviser or investment director. Decides what the trust buys, sells, and holds. Used when the family wants to keep a business, real estate, or a concentrated position that a corporate trustee would otherwise be obliged to diversify, or wants a particular financial adviser to keep managing the money.
• Distribution adviser or distribution committee. Decides discretionary distributions. Often a family member or a group of family members who know the beneficiaries, paired with a professional trustee who handles everything else.
• Trust protector. Holds powers that are not day-to-day decisions: removing and replacing the trustee, amending administrative provisions, changing the trust’s governing law or situs, correcting drafting errors, or adding or removing beneficiaries within limits. The protector is the trust’s safety valve for decades the settlor cannot foresee.
• Administrative or directed trustee. The trustee proper, which holds title, keeps records, files returns, and carries out the directions of the others. Often a bank or trust company chosen for its infrastructure rather than its judgment.

The trustee’s job is to follow the direction it receives. The statutory question in every state is how much liability the trustee keeps for doing so, and how much the director takes on.

What Does New Jersey Law Provide?

The New Jersey Uniform Trust Code addresses directed trusts in two sections.

N.J.S.A. 3B:31-61 covers powers to direct generally. If the trust confers on a person other than the settlor “the power to direct certain actions of the trustee, the trustee shall act in accordance with a written exercise of the power unless the attempted exercise is contrary to the terms of the trust or the trustee knows the attempted exercise would constitute a breach of a fiduciary duty that the person holding the power owes to the beneficiaries.” The holder of a power to direct, unless a beneficiary, “is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries” and “is liable for any loss that results from the holder’s failure to act in good faith.” The document may also give a trustee or another person the power to direct modification or termination of the trust, which is the statutory basis for a trust protector’s amendment power.

N.J.S.A. 3B:31-62 covers investment direction specifically and is the more protective provision. A person given authority “to direct, consent to or disapprove a fiduciary’s actual or proposed investment decisions” is an investment adviser and a fiduciary. When the document requires the trustee to follow the adviser’s direction and the trustee does so, “except in cases of willful misconduct or gross negligence on the part of the fiduciary so directed, the fiduciary shall not be liable for any loss resulting directly or indirectly from any such act.” Unless the document says otherwise, the directed trustee has “no duty to monitor the conduct of the investment adviser,” to advise or consult with the adviser, or to warn beneficiaries that it would have decided differently. The statute goes further than most: it presumes that the trustee’s ministerial acts within the adviser’s authority, such as carrying out and recording directed trades, are administrative only.

New Jersey’s statute is therefore strongest for investment direction and more general for other powers. A New Jersey directed trust with a distribution adviser or protector relies on section 3B:31-61’s good-faith standard and on careful drafting to allocate liability.

What Does Connecticut Law Provide?

Connecticut adopted the Uniform Directed Trust Act as part of its 2020 trust code overhaul, at General Statutes sections 45a-500b through 45a-500s. It applies to any trust with its principal place of administration in Connecticut, including trusts created before 2020 as to decisions made after January 1, 2020.

The Connecticut act uses the terms “trust director” and “directed trustee” and treats all powers of direction alike, whether over investments, distributions, or administration. Under section 45a-500h, a trust director “has the same fiduciary duty and liability in the exercise or nonexercise of the power” as a sole trustee, or as a co-trustee if the power is held jointly, and the trust terms may vary that duty to the same extent they could for a trustee. Under section 45a-500i, “a directed trustee shall take reasonable action to comply with a trust director’s exercise or nonexercise of a power of direction” and “is not liable for the action,” except that the trustee “shall not comply” to the extent that doing so “would engage the trustee in wilful misconduct.” A directed trustee in doubt may petition the court for instructions.

Connecticut’s act also allows the same structure between co-trustees. Under section 45a-500l, the trust may relieve one co-trustee from duty and liability for another co-trustee’s decisions to the same extent a directed trustee is relieved for a director’s decisions. That lets a family draft two co-trustees with divided lanes and real protection for each, which the ordinary co-trustee rules described in our article on whether a co-trustee can act alone do not provide.

Why Is New York Different?

New York has no directed trust statute. Bills to enact one have been introduced since 2015, with the support of the state and city bar associations, and none has passed. The pieces of New York law that touch the subject were not built for it.

Under Estates, Powers and Trusts Law section 11-2.3(c), a trustee may delegate investment functions to an adviser, but the trustee keeps the duty to exercise care in “selecting a delegee suitable to exercise the delegated function,” “establishing the scope and terms of the delegation,” “periodically reviewing the delegee’s exercise of the delegated function,” and controlling the cost. The delegee owes duties to the trust, and “an attempted exoneration of the delegee from liability for failure to meet such duty is contrary to public policy and void.” That is a delegation regime, not a direction regime: the trustee is still choosing and supervising, and a document that simply orders the trustee to obey an outside adviser does not fit cleanly within it. A New York trustee told to hold a concentrated stock position at a family adviser’s direction remains exposed under the prudent investor rule in a way a New Jersey or Connecticut trustee does not.

The practical consequences for New York families are two. First, corporate trustees are reluctant to serve as directed trustees of New York-law trusts, because the statute does not protect them. Second, many New York clients who want the structure create the trust under the law of a state with a directed trust statute and appoint a trustee there. Delaware is the traditional choice; for our clients, New Jersey and Connecticut are closer and their statutes are now mature. A trust protector can be given the power to move the trust’s situs later if New York enacts its own act.

When Does Splitting the Role Make Sense?

• A family business or real estate in the trust. A corporate trustee will not hold an operating company or a single building without protection from the duty to diversify. Naming a family member as investment adviser with express authority to retain the asset, and a directed trustee to administer, keeps the asset and the professional.
• A concentrated position the settlor wants kept. Founder stock, a long-held employer position, or a legacy holding the settlor does not want sold.
• A special needs trust. A parent or sibling who knows the beneficiary decides distributions and coordinates with public benefits; a professional invests and files. Under the Connecticut act a trust director is expressly held to the trustee’s standards on Medicaid payback provisions, which matters in these trusts.
• A long-term trust for grandchildren. A trust that will run for decades needs a protector who can replace trustees, fix administrative provisions, and respond to changes in tax law without a court.
• A family that wants a professional trustee but not a professional’s judgment about the beneficiaries. The distribution committee of family members with a corporate directed trustee is the most common structure we see.

It makes less sense for a modest trust where the added parties, and their fees, outweigh the benefit, or where the family has one capable person willing to do the whole job.

What Should the Document Say?

The statutes supply the framework, and the document supplies everything else. The points that decide whether the arrangement works:

• Define each power precisely. Say which decisions belong to the director and which stay with the trustee. Gaps and overlaps are where litigation starts.
• Require written direction. New Jersey’s statute protects the trustee only for “a written exercise of the power.” Provide a procedure and a form.
• State the liability allocation expressly. Recite that the trustee has no duty to monitor, advise, or second-guess the director, that the director is a fiduciary, and the standard to which each is held. Connecticut allows the document to vary the director’s duty as it could a trustee’s; New Jersey requires at least good faith.
• Say whether the director is a fiduciary. Investment advisers under New Jersey’s section 3B:31-62 are fiduciaries unless the document provides otherwise; protectors are often drafted as fiduciaries for some powers and not others.
• Provide for succession and removal of every director and protector, not just the trustee. A vacant adviser position can paralyze a directed trust.
• Address compensation and information. Directors need access to trust records to do their jobs, and the document should say who pays them and how much.
• Choose the governing law and situs deliberately, and give the protector power to change both.

Plan Well. Live Better.

The best trustee for the money is rarely the best trustee for the family, and a directed trust lets you have both. At Milvidskiy Law Group, we design trusts that place each decision with the right person, under a governing law that protects everyone involved. Learn more about our estate planning services.

This article is for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship. Trust law varies by state and depends on the terms of each instrument. The New Jersey, Connecticut, and New York statutes described were verified in September 2026 and the status of proposed New York legislation was checked at that time; both should be confirmed before relying on them.