On August 10, 2012, Governor Pat Quinn signed the Illinois Directed Trust Statute (HB 4663) into law. It will become effective on January 1, 2013.
Generally, a trustee of an Illinois trust is personally liable for any loss due to a violation of his or her duties, whether such loss is due to negligence, oversight or wrongful intent. Additionally, under current Illinois law, a grantor is allowed to appoint an investment advisor for the trust, but all other discretionary decisions must be made by the trustee and cannot be delegated.
The new law amends the Illinois Trusts and Trustees Act and, in terms of practical use, allows the grantor of a trust to delegate certain duties to a “directing party.” It also protects the trustee from liability when the trustee is acting in accordance with the instruction of such directing party. In such cases, the trustee will be considered an “excluded fiduciary” under the new law.
Trust Protectors
A trust protector is an individual who is appointed to oversee a trust, usually those that are expected to be administered over longer periods of time, and ensure that the trust is not adversely affected by any changes in the law or changes in the circumstances of the beneficiaries. As a fairly recent tool, planners have been forced to rely on case law to establish guidelines for the trust protector’s role. The new law defines “trust protector” and the powers that a trust protector may hold, including modifying or amending the trust to achieve favorable tax status or respond to changes in the law, adjusting the interest of a beneficiary, modifying a power of appointment, removing or appointing a trustee or advisor or terminating the trust.
Investment Trust Advisors and Distribution Trust Advisors
The new law also defines the powers of investment trust advisors and distribution trust advisors. An investment trust advisor is an individual or institution that is chosen by the grantor to advise the trustee on investment decisions. A distribution trust advisor is an individual or institution that is chosen by the grantor to make distributions to the beneficiaries of the trust at the advisor’s discretion. By defining the powers of these positions, the new law will encourage greater use of such expertise and planners, trustees and advisors will be able to act and advise with more confidence.
As trusts become more complex and their administration requires greater time and expertise, the new law provides much-needed guidance regarding the roles and responsibilities of several important components in trust administration. Additionally, the law protects the trustee from the acts of such directing parties, which will encourage individuals and financial institutions to accept the role of trustee when they are required to work with others at the request of the grantor.