The Importance of Trustee Selection

Over the past century, the trust industry has evolved from a conservative, administrative framework into a modern, highly specialized discipline. The role of a trustee today sits squarely at the intersection of law, taxation, investment management, and government regulation. Understanding how this role has evolved helps explain why modern trusts look very different from those of prior generations, and why selecting a trustee with deep institutional experience, judgment, and jurisdictional fluency has become increasingly important.

Historically, trustees were expected to be cautious above all else. Early trust law relied on court‑made rules that judged a trustee’s actions after the fact, often with the benefit of hindsight. As a result, trustees gravitated toward safe, predictable investments. Many states even maintained “legal lists” of approved assets, such as government bonds or first mortgages, that effectively discouraged innovation.

By the mid‑20th century, these legal lists gave way to the “prudent man” standard, which allowed more flexibility but still viewed many common investments—such as stocks or diversified portfolios—as inherently risky. It was not until the late 1980s and early 1990s that most states adopted the “prudent investor” rule, formally embracing diversification and modern portfolio theory. This shift transformed trust investing from a static exercise into an active, judgment‑driven process—one that requires trustees with the experience and resources to evaluate risk in context rather than in isolation.

Investment complexity was only one part of the story. Beginning in the 1980s, states began competing for trust business by modernizing their trust laws. Delaware emerged as a leading jurisdiction by offering clarity, flexibility, and predictability—qualities that have made it a preferred situs for complex, long‑term trusts.

Many states eliminated traditional limits on how long trusts could last, enabling so‑called perpetual or dynasty trusts. Others formalized the concept of the directed trust, allowing investment advisors, distribution advisors, and trust protectors, who were often family members, to direct certain trustee actions while the trustee remained responsible for administration and compliance. Delaware’s directed trust statute, in particular, has become a cornerstone of modern trust planning, placing a premium on trustees who can operate confidently within a multi‑party fiduciary framework.

Some states—pioneered by Delaware and Alaska—went further by authorizing self‑settled asset protection trusts, giving individuals the ability to place assets in trust while retaining limited access and still receiving creditor protection. These developments fundamentally reshaped the trust landscape and expanded the range of planning strategies available to families.

At the same time, differences in state income tax regimes created planning opportunities. Families increasingly located trusts in favorable jurisdictions to reduce or mitigate state income taxes on trust earnings. These strategies—often involving irrevocable nongrantor trusts administered in low‑ or no‑tax states—added another layer of legal and tax complexity, reinforcing the need for trustees with access to tax and administrative capabilities.

As trust structures became more advanced, so did expectations of trustees. Today’s trusts are often designed not only to preserve wealth, but to support beneficiaries across generations. Trustees may be asked to oversee financial education initiatives, facilitate family governance structures, or work with designated representatives who act on behalf of beneficiaries.  Recently, Delaware enacted a unique Beneficiary Well-Being statute that provides trustees with the power, and in some cases the duty, to support beneficiaries with these important services.

Modern trusts may also limit the information provided directly to beneficiaries through the use of “quiet trust” provisions and designated representatives—features available using Delaware trust law. Administering these arrangements requires discretion, clear communication, and the ability to balance privacy with accountability over extended time horizons.

The rise of multinational families has further expanded the trustee’s role. Where once trusts primarily addressed interstate issues contained within the United States, many trustees now routinely navigate multiple legal systems, tax regimes, and regulatory frameworks. Delaware‑based trusts are frequently used to help families integrate U.S. and non‑U.S. assets, support beneficiaries studying or working in the United States, or help provide stability amid political or economic uncertainty abroad.

In addition, U.S. estate tax rules often encourage non‑U.S. families to hold American real estate through trust structures, adding yet another dimension to fiduciary oversight. These arrangements typically demand trustees with access to specialized legal and tax expertise and the operational scale to manage cross‑border compliance.

As trusts grew more complex, demand for professional fiduciaries increased. Trust services became an important line of business for financial institutions, and competition intensified. While innovation attracted assets, it also placed pressure on fees and operating margins.

One common misconception is that directed trusts reduce a trustee’s workload or risk. In practice, the opposite is often true. Even when acting at the direction of others, a trustee must confirm that each action is authorized by the trust, legally permissible, and consistent with regulatory obligations. Evaluating unique assets, private investments, or emerging industries requires experience, process, and disciplined oversight.

A key challenge for advisors and families is distinguishing between trustees who simply provide administrative “situs”* in a favorable jurisdiction and those who deliver comprehensive fiduciary oversight. Over time, that distinction can be critical. Trust services are not interchangeable commodities; each trust presents its own facts, risks, and long‑term objectives.

Delaware’s experience can offer a clear view of where the trust industry looks to be headed. As trust structures become more durable, more customized, and more globally connected, the trustee’s role continues to expand beyond administration into one of judgment, coordination, and long‑term stewardship.

Modern trusts increasingly demand trustees with access to deep legal, tax, investment, and administrative capabilities—supported by a jurisdiction known for clarity and stability. In this environment, the trustee is not merely a service provider, but a strategic advisor in long‑term planning.

While pricing pressures and competition persist, trustees who can demonstrate the value of comprehensive fiduciary oversight—grounded in experience, process, and jurisdictional strength—remain well positioned.

*Situs refers to the place to which the trust belongs for purposes of legal jurisdiction or taxation.

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

Note that financial and estate planning strategies require individual consideration, and there is no assurance that any strategy will be successful.

Wilmington Trust is not authorized to and does not provide legal, accounting, or tax advice. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own attorney, tax advisor or other professional advisor.

Note that a few states, including Delaware, have special trust advantages that may not be available under the laws of your state of residence, including asset protection trusts and directed trusts.