The purpose of estate tax planning is to maximize the assets you pass on to future generations by minimizing gift and estate taxes. Estate-tax strategies revolve around the use of irrevocable trusts. This article discusses the most common types of irrevocable trusts that are used to minimize gift and estate […]
Valur’s South Dakota trusts are directed trusts, which means that from time to time during the administration of the trust, a so-called “letter of direction” will have to be sent to the trustee. You’re probably wondering: What are directed trusts? and What are letters of direction? This article provides the context you need to understand both terms.
In order to understand what letters of direction do, you have to understand the term “directed trust.” A directed trust is a type of trust that is structured so that the trustee carries out administrative functions while “advisors” direct the trustee with respect to investments and distributions.
Valur’s trusts typically have two advisors: an “investment advisor,” whose job is to make investment decisions, and a “distribution advisor,” whose job is to make distribution decisions. (Often, the distribution advisor role is left vacant until years after a trust is created.) This structure allows the grantor to name people who the grantor trusts to personally control specific investment and distribution decisions, while allowing the trustee to professionally administer the trust. This reduces the cost of administering a South Dakota trust, and allows us to pass on that savings to the consumer.
A letter of direction is a letter that an advisor sends to the trustee notifying the trustee of what the advisor wants the trustee to do. For example, if a trust is acquiring a life insurance policy, the investment advisor might send a letter of direction to the trustee to direct the trustee to sign the policy application. Likewise, if a distribution advisor decides to make a $20,000 distribution to a beneficiary, he or she will communicate that to the trustee through a letter of direction. Letters of direction are important because they are how advisors communicate their directions and exercise control over the trust.
Letters of direction have to be signed by the relevant advisors and sent to the trustee. And, of course, they have to communicate some sort of direction to the trustee. But other than that, there aren’t really any rules, though typically they’ll cite relevant laws and/or provisions of the trust agreement. Note that if there is more than one person acting in a single advisory role — for example, if there are two investment advisors — a majority of the individuals acting in that role will have to sign the letter of direction in order for it to be valid.
We’ve built a platform to give everyone access to the tax and wealth-building tools typically reserved for wealthy individuals with a team of accountants and lawyers. We make it simple and seamless for our customers to take advantage of these hard-to-access tax-advantaged structures. With Valur, you can build your wealth more efficiently at less than half the cost of competitors.
From picking the best strategy to taking care of all the setup and ongoing overhead, we make things simple. The results are real: We have helped create more than $3 billion in additional wealth for our customers. If you would like to learn more, please feel free to explore our Learning Center. You can also see your potential tax savings with our online calculators or schedule a time to chat with us!
