Pennsylvania’s Uniform Directed Trust Act Creates New Flexibility in Trust Administration

By Catherine Appel and Shelby Jones *

Pennsylvania will soon become the 20th state to adopt a version of the Uniform Directed Trust Act (the Act), adding a new subchapter to the PEF Code and significantly changing the existing provisions of the state’s Uniform Trust Act.

The Act, which will take effect on October 14, 2024, is intended to disperse the administrative burdens associated with trusts by expanding and/or specifically allocating responsibilities among more individuals.

The Act changes the administration of Pennsylvania trusts in two primary ways.

First, settlors may now assign separate responsibilities and duties to different trustees. Previously, many practitioners relied on non-binding letters of instruction from settlors and co-trustees appropriately delegating work to another co-trustee when a task was outside of their wheelhouse. Now, after the Act, the settlor can specify which trustee they want to manage certain responsibilities, such as overseeing investments and handling discretionary distributions. For example, a settlor appoints two trustees, Trustee A and Trustee B, and requests that Trustee A handle all matters related to the family business. Before the Act, Trustees A and B were not necessarily required to follow this precatory instruction. After the Act, the settlor can include trust terms requiring Trustee A to handle business matters and, in doing so, relieve Trustee B from liability for Trustee A’s decisions and conduct related to the business.

Second, settlors may now appoint a non-trustee — a “trust director” — to carry out certain trust functions, including, if certain powers are specified in the trust instrument, to serve as a “trust protector.” Trust directors often have technical experience, such as financial planning, asset management or law, but can also have strong interpersonal skills and/or healthy relationships with the trust’s beneficiaries to assist in managing the individual dynamics rather than legal or investment matters. In either case, the trust director may guide the trustees in their administration of the trust.

Among the thirteen enumerated powers that a settlor may grant to a trust protector is the ability to modify the terms of the trust. Many Pennsylvania trust lawyers envy other jurisdictions that clearly authorize trust protectors to modify the administrative terms of a trust by simply noticing the interested parties, while Pennsylvanians were forced to rely on the willingness of beneficiaries to execute nonjudicial settlement agreements to accomplish the same result. Now, a trust protector can modify the terms of a trust by providing notice to the trustees and qualified beneficiaries without having to specifically seek approval for doing so. Granted, the trustees and trust protector likely would still seek such approval and obtain a release from the interested parties before taking such action. But the flexibility of the trust protector’s modification is at least another option available.

The Act also clarifies the liability of a trust director and directed trustee. Generally, the liability follows the duty, which is connected to the authority to direct the completion of a task. In other words, a directed trustee acting at the direction of a trust director is liable only for following directions which caused the directed trustee to engage in willful misconduct.

Pennsylvania trust lawyers will need to adjust to the Act, which may change how many approach the drafting and administration of Pennsylvania trusts. Clients, however, may find comfort in knowing that responsibility in administering a trust can now be bifurcated in a clearer, more flexible manner.

*Shelby Jones is currently a Law Clerk at Fox Rothschild.

For more information, please contact Catherine L. Appel at [email protected], or another member of Fox Rothschild’s national Taxation & Wealth Planning Department.