You Do This and I’ll Do That: Directed Trusts Come to Pennsylvania

by Christopher Gray

In 2024, Pennsylvania Gov. Shapiro signed a law, effective Oct. 14, that officially authorizes Trust Directors for Pennsylvania trusts. The Directed Trust is a modern creation that permits the trust’s Grantor to divide the Trustee’s responsibility and liability among two or more individuals. Under prior law, a Grantor designated a single Trustee who hired other professionals to provide them with advice and recommendations. In Pennsylvania, however, this arrangement did not reduce or discharge a Trustee from the responsibility and liability for actions taken based on an advisor’s recommendations. The Trustee was still on the hook for losses even though following the advice of a professional.

By updating the Pennsylvania Trust Code[1] to permit Directed Trusts, Grantors of Pennsylvania Trusts have been given a benefit that will allow them more flexibility when naming Trustees of their Trusts. The flexibility of a Directed Trust allows Grantors to capitalize on particular skills of individuals without accepting other skills that are less developed. For instance, an individual might have experience working for and operating a family business but lack investment management experience. The Directed Trust Act permits a Grantor to divide the responsibilities so that one Trustee or Trust Director can be appointed to operate the family business, and another Trustee can handle all remaining Trust duties. 

The Directed Trust Act permits two types of Trustee arrangements. The first is the bifurcation of Trustee responsibilities. With this arrangement, a Trust Grantor may designate two or more individuals as Trustees and specify the responsibility of each. For instance, one Trustee might be responsible for making distributions of Trust assets to beneficiaries, another Trustee might be responsible for investing Trust assets, and a third Trustee might take on the responsibility of all other administrative matters, including filing income tax returns and accounting. Since each is a Trustee, each has responsibility, and therefore liability, only for their specific areas of responsibility. 

The second version contemplates the appointment of a Trust Director, defined as an individual who is not a Trustee but who is given the Power of Direction over a discrete area of trust maintenance and/or administration. The Trust Director instructs the Trustee to take or not to take certain actions. For instance, a Trust Director’s responsibility might be to operate and manage a family business. While discharging this duty, the Trust Director might direct the Trustee to purchase a particular piece of equipment. As the business owner, the Directed Trustee will purchase the equipment. If the equipment proves to be a bad investment, reducing the value of Trust assets and income, the Directed Trustee will not be held liable for these losses, but the Trust Director may be.

The Directed Trust Act[2] also confirms that Pennsylvania Trusts can name Trust Protectors, which many practitioners have included in their trust documents for years. Under the Directed Trust Act, a Trust Protector may be given any power that the Trust Grantor specifically describes in the Trust document, not just those powers specifically described in the statute. Trust Protectors are commonly delegated power to change or modify Trust provisions. For example, Trust Protectors might be granted the power to convert a trust into a Special Needs Trust,[3] Change distribution provisions, modify or renounce any power granted to a Trustee, expand or limit the class of permissible Trust beneficiaries, appoint or remove Trustees or Trust Directors, and appoint successor Trust Protectors, to name a few. The Directed Trust Act does not specify whether the Trust Protector acts in a fiduciary or non-fiduciary capacity, so that should be addressed when the Trust is drafted.

The Directed Trust Act is effective to grant Powers of Direction in Trusts modified or created after Oct. 14, 2024. This is beneficial for Trusts created after that date. However, for pre-existing Irrevocable Trusts that their terms cannot modify, the benefits of the Act are available only if the Irrevocable Trust is modified to include the powers. In general, if the Grantor of the Trust is living, the Grantor and all beneficiaries may agree to modify the Trust and include Directed Trust provisions. If the Grantor has died, all trust beneficiaries may petition a Court to modify a Trust if the change “is not inconsistent with a material purpose of the Trust.”[4]

By improving the flexibility of Grantors to specifically tailor roles, responsibilities, and liabilities of Trustees, the Directed Trust Act will likely encourage Pennsylvania individuals to prepare Trusts that apply Pennsylvania Law and are sited in the Commonwealth. The provisions of the Act will also have a positive impact on Trustees’ willingness to accept Trustee roles and responsibilities that are limited to their areas of proficiency. The enactment of the Directed Trust Act has been a very positive development for Pennsylvania Grantors, Beneficiaries, and Trustees. 

            Christopher R. Gray is a Member of Norris McLaughlin, P.A. in the firm’s Allentown office, practicing Taxation and Estate Planning and Administration & Wealth Preservation. In addition, Christopher is experienced in corporate matters, business transactions, exempt organizations, health care governance, and elder law.


[1] 20 Pa.C.S.A. §7701, et seq.

[2] 20 Pa.C.S.A. §7780.11 et seq.

[3] A Special Needs Trust, also known as a Supplemental Needs Trust, contains special provisions that preclude Trust Assets from being considered available to an individual seeking certain means-tested government benefits, like Medicaid or Supplemental Security Income. 

[4] 20 Pa.C.S.A. §7740.1(b). 

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