As previously discussed, nearly all states have delegated trust statutes allowing a trustee to delegate investment responsibility to an outside investment advisor. In delegating, the trustee must complete due diligence as well as ongoing monitoring of the selected investment manager. A delegated trust allows a trustee to delegate duties and responsibility, but not risk.
Many family member trustees do not generally do this due diligence and monitoring, which can result in unwanted individual liability at some point in the future. Consequently, many clients move their delegated trusts to South Dakota and reform/modify them to directed trusts. The due diligence and monitoring required with a delegated trust is not required with a directed trust, thus allowing a family to invest the trust without interference from the administrative trustee, and keeping the administrative trustee fees very low. South Dakota has one of the top-rated delegated trust statutes in the U.S.
| Individual NY/CA Trustee | Corporate NY/CA Trustee | Directed Trust Structure | |
| Family & Friends Can Control Investments | Yes | Not Usually | Yes |
| Family & Friends Can Control Distributions | Yes | Family & Friends Can Control Distributions | Yes |
| (Need Independent Trustee for tax sensitive) | No | Yes | (Need Independent Trustee for tax sensitive) |
| (Need Independent distribution committee member(s) for tax sensitive) | (Need Independent distribution committee member(s) for tax sensitive) | (Need Independent distribution committee member(s) for tax sensitive) | (Need Independent distribution committee member(s) for tax sensitive) |
| Personal Liability | Yes, as a Personal Trustee | Personal Liability | Yes, as a Personal Trustee |
| (High) | Yes, as a Personal Co-Trustee with Corporate Trustee | (High) | Yes, as a Personal Co-Trustee with Corporate Trustee |
| (High) | Yes, but very limited and only as a fiduciary (not trustee) running the investment and/or distribution committees with gross negligence or willful misconduct standard | (High) | Yes, but very limited and only as a fiduciary (not trustee) running the investment and/or distribution committees with gross negligence or willful misconduct standard |
| Trust Protector | No | No | Yes |
| Power to Remove Trustee and/or Fiduciary | Yes | Yes | Yes |
Please also note that a delegated trust from another state can easily be reformed/modified in a timely (i.e., one –two weeks) and cost effective (i.e., $2,500 – $3,000) manner to a directed trust in South Dakota. South Dakota is also the only automatic total seal jurisdiction in perpetuity, so the reformation/modification court documents will be private forever.
