On April 4, 2012, Virginia Governor McDonnell signed into law Senate Bill 180
which, when incorporated into a trust either by the settlor or the interested
parties, provides protections for a trustee when acting or not acting pursuant
to the directions of a trust director. The bill amends Virginia Code section
55-548.08, which is the part of the Virginia Uniform Trust Code (VUTC) that
addresses the power to direct the action of a trustee.
As estate planning and investments have become more complicated, settlors are
increasingly interested in giving third parties – often called “trust
directors,” “trust protectors” or “trust advisors” – powers to direct the
actions of a trustee. For example, a settlor may desire to name a family member
as trustee, but give a professional investment advisor the authority to direct
trust investments. Or, a settlor may desire to name a professional fiduciary to
administer the trust, but give an involved family member or business expert with
special expertise the power to direct the trustee with respect to managing a
closely held business interest held in the trust.
Currently, the VUTC provides that a trustee must act in accordance with a
trust director’s directions unless (1) the directions are manifestly contrary to
the trust terms or (2) the trustee knows the action would be a serious breach of
the duty that the trust director owes to the beneficiaries of the trust. These
statutory exceptions to the trustee’s obligation to act pursuant to a direction,
along with other obligations arising out of the common law, could expose the
trustee to beneficiary claims for losses resulting from the trust director’s
directions. The current statute also provides that the trust director is only
“presumptively” a fiduciary, leaving open the possibility that a settlor could
attempt to give powers to a trust director and at the same time provide that the
trust director does not owe duties to the beneficiaries and is not liable for
losses caused by its actions.
The law adds a new subsection E to Virginia Code section 55-548.08 that
applies to any trust administered under Virginia law, but only if the subsection
is either (1) incorporated into the trust instrument by specific reference by
the settlor or (2) incorporated into the trust instrument by specific reference
in a nonjudicial settlement agreement under the VUTC. The ability to bind minor,
missing, unknown, unborn and incapacitated beneficiaries to a nonjudicial
settlement agreement by virtual representation under the VUTC will facilitate
the use of agreements to incorporate the new subsection.
Where subsection E applies, a trust director will be deemed a fiduciary with
fiduciary duties and liability for losses resulting from a breach of those
duties, notwithstanding any contrary language in the trust instrument.
Correspondingly, where the subsection applies, a directed trustee will have
no liability to the beneficiaries for any losses from actions taken or not taken
pursuant to the trust director’s directions or as a result of the trust
director’s failure to direct or otherwise act after receiving a request for
direction, consent or action by the trustee. The directed trustee remains liable
to the beneficiaries only in the case of willful misconduct or gross negligence
by the directed trustee.
Unless the trust instrument expressly provides otherwise, the subsection also
limits or eliminates the directed trustee’s obligations to (1) monitor the trust
director, (2) provide information to the trust director, (3) inform or warn the
beneficiaries, third parties or the trust director that the trustee disagrees
with the trust director, or (4) take any action to prevent the trust director
from acting or to compel the trust director to redress its actions or
The cumulative effect of the subsection, where it applies, is to clarify that
in most circumstances the trust director will be solely responsible to the
beneficiaries for the consequences of its actions.
The law goes into effect on July 1, 2012.
The full text of the law is available
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