Directed Trusts in Connecticut
A directed trust splits traditional trustee functions among multiple parties. One party (the “directed trustee”) holds legal title to the trust assets and performs administrative functions. Another party (the “trust director”) holds the authority to make investment decisions, distribution decisions, or both. This bifurcation allows families to pair the administrative capabilities of a corporate trustee with the judgment of a trusted advisor or family member.
Connecticut’s Framework for Directed Trusts
Connecticut’s directed trust provisions are embedded within the Connecticut Uniform Trust Code (CGS 45a-499a through 45a-500s), which took effect January 1, 2020 as part of PA 19-137. The key definitions appear in CGS 45a-499c:
- Directed trust: a trust for which the terms grant a power of direction (CGS 45a-499c(11)).
- Directed trustee: a trustee that is subject to a trust director’s power of direction (CGS 45a-499c(12)).
- Trust director: a person granted a power of direction by the terms of the trust, exercisable while the person is not serving as trustee (CGS 45a-499c(30)).
- Power of direction: a power over a trust granted to a person by the trust terms, including power over investment, management, distribution, or other matters of trust administration (CGS 45a-499c(20)).
A person qualifies as a trust director whether or not the trust instrument uses that specific term. Someone called a “trust protector,” “trust advisor,” or “investment committee member” is a trust director if the person holds a power of direction.
Types of Direction Powers
Trust instruments commonly grant three categories of direction power.
Investment direction. The trust director controls investment decisions: what to buy, sell, hold, and how to allocate the portfolio. The directed trustee executes transactions as instructed. This is common when a family wants to use a particular financial advisor while relying on a corporate trustee for custody, recordkeeping, and tax compliance.
Distribution direction. The trust director decides when and how much to distribute to beneficiaries, and the directed trustee makes the distributions as directed. This is useful when a family member or close advisor has better knowledge of the beneficiaries’ circumstances than a corporate trustee would.
Administrative direction. Some trusts grant trust directors authority over specific administrative decisions: whether to exercise tax elections, whether to participate in litigation, or how to vote closely held business interests.
A single trust can have multiple trust directors, each with authority over different functions. One person might direct investments while another directs distributions.
Liability Allocation
The most significant feature of Connecticut’s directed trust framework is how it allocates liability between the directed trustee and the trust director.
Under CGS 45a-500e, a directed trustee must comply with a trust director’s exercise of a power of direction, except that the directed trustee is not required to comply with a direction that the trustee knows would constitute a serious breach of fiduciary duty by the trust director. If the directed trustee complies with a proper direction, the directed trustee is not liable for any loss resulting from compliance.
The trust director, in turn, is held to the same fiduciary standards as a trustee with respect to the powers the director exercises. A trust director who exercises investment direction owes the same duty of prudence that a trustee would owe in making investment decisions.
This allocation matters. Under the older common law approach, a trustee who blindly followed the instructions of a third party could be held liable for resulting losses. The CUTC directed trust framework eliminates that risk when the trustee complies in good faith with a proper direction. The person making the decision bears the fiduciary responsibility.
Trust Protectors
Trust protectors are a subset of trust directors. They are typically granted broader, structural powers rather than day-to-day operational authority:
- Power to remove and replace trustees
- Power to add or exclude beneficiaries
- Power to modify trust terms (within limits)
- Power to change the trust’s governing law or situs
- Power to veto distributions
Under the CUTC, a trust protector who holds these powers is a trust director and is subject to fiduciary duties with respect to those powers. The trust instrument can define the scope of those duties, but it cannot entirely eliminate the duty of good faith.
Trust protectors are particularly useful in long-term or dynasty trusts, where the trust may last for generations and need to adapt to circumstances the grantor could not have foreseen.
Why Connecticut Is Attractive for Directed Trusts
Several features of Connecticut law make the state increasingly attractive as a directed trust situs.
Clear statutory framework. The CUTC provides detailed, well-organized provisions governing directed trusts, trust directors, and liability allocation. This clarity reduces uncertainty and litigation risk.
800-year rule against perpetuities. For trusts created on or after January 1, 2020, the rule against perpetuities allows trusts to last up to 800 years (CGS 45a-491(f)). Combined with the directed trust framework, this enables multi-generational trusts with built-in governance flexibility.
Domestic asset protection trusts. The CT Qualified Dispositions in Trust Act (CGS 45a-487j et seq.) allows self-settled trusts with creditor protection, which can be combined with directed trust provisions for comprehensive planning.
No state income tax on certain trusts. Connecticut’s income tax rules for trusts are based on the residence of the trust and its beneficiaries. Non-grantor trusts administered in Connecticut for non-resident beneficiaries may have favorable income tax treatment depending on the specific facts.
Decanting. The Connecticut Uniform Trust Decanting Act (CGS 45a-545a et seq.) allows existing trusts to be decanted into new trusts with directed trust provisions, enabling families to update older trust structures.
Practical Considerations
Directed trusts work best when the roles and responsibilities of each party are clearly defined in the trust instrument. Ambiguity about who has authority over what creates conflict and potential liability gaps.
The trust instrument should specify:
- Exactly which powers are granted to each trust director
- How trust directors are appointed, removed, and replaced
- Whether trust directors are compensated
- How conflicts between trust directors are resolved
- Whether the directed trustee has any duty to monitor the trust director’s actions beyond the statutory minimum
- What happens if a trust director becomes incapacitated, resigns, or dies
Corporate trustees serving as directed trustees will typically require that their administrative fees be clearly separated from the investment or distribution functions they are not controlling. They will also insist on indemnification provisions and clear documentation of all directions received.
For the broader statutory framework that governs directed trusts, see our Connecticut Uniform Trust Code overview. For related modification tools, see trust decanting in Connecticut.
Directed trusts are frequently used in dynasty trust planning, where the 800-year rule against perpetuities allows trusts to span multiple generations. For the estate tax implications of long-term irrevocable trust structures, see the Connecticut estate tax guide.