How New Trust Laws Are Leaving Wealthy Families Unprotected

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State legislatures have systematically dismantled beneficiary protections in a competitive race to attract trust business.

If you're using trusts to protect family wealth or pass down a business, the legal landscape has fundamentally changed—and trustees may face dramatically reduced accountability for their actions.

The Trust Protection You Think You Have May Not Exist

For decades, trust law rested on an “irreducible core” of duties—fundamental obligations trustees owed beneficiaries that couldn’t be eliminated without destroying the trust concept itself. As the landmark case Armitage v. Nurse declared: “If the beneficiaries have no rights enforceable against the trustee, there are no trusts."

That foundation is crumbling. A recent presentation at the Heckerling Institute, the nation’s premier estate planning conference, revealed how state legislatures have systematically dismantled beneficiary protections in a competitive race to attract trust business. The stakes are enormous: states generate significant revenue from trust administration fees, creating powerful incentives to offer trustee-friendly laws.

The result? A new generation of trusts where beneficiaries may never learn of their interests, trustees face minimal liability for mismanagement, and family businesses can be gutted without legal recourse. These aren’t hypothetical risks—they’re features explicitly authorized by state law.

Related:Key Takeaways from Heckerling 2026

When “Good Faith” Becomes Optional

The duty of good faith has long been considered sacrosanct—the bedrock obligation no trust could eliminate. Several states have now removed even this protection.

Tennessee has explicitly removed good faith from the list of mandatory trustee duties, with official comments stating plainly: “Under T.C.A. § 35-15-105(a), a settlor can in the terms of the trust override the duty of good faith.” The implication is stark: your trustee may have no legal duty to act in good faith.

Delaware allows trust terms to “expand, restrict, eliminate, or otherwise vary any laws of general application to fiduciaries,” giving settlors—or more accurately, the attorneys drafting the documents—virtually unlimited flexibility to eliminate traditional protections.

New Hampshire has taken a different approach, redefining “good faith” in explicitly circular terms: good faith means acting in accordance with the trust’s terms and the beneficiaries’ interests, “as their interests are defined under the terms of the trust.” This allows trust drafters to define away beneficiary interests entirely, rendering the “good faith” requirement meaningless.

These changes represent more than technical adjustments. They fundamentally alter the relationship between trustee and beneficiary, shifting power decisively toward those who control trust assets.

Related:The Problem with Modern Trust Provisions

Exculpatory Clauses: Shielding Trustees from Liability

Beyond weakening mandatory duties, modern trust-friendly jurisdictions permit exculpatory clauses that shield trustees from liability for nearly all conduct short of intentional fraud.

Delaware permits nearly unlimited exculpation, prohibiting only “willful misconduct” which it defines narrowly as conduct that is both intentional and either malicious or designed to defraud or seek an unconscionable advantage.

This means trustees can’t be held liable for gross negligence, recklessness, or even bad faith conduct lacking specific intent to harm. Delaware even provides a safe harbor: a trustee who acts in good faith reliance on trust terms cannot be held liable for breaches resulting from that reliance—regardless of how poorly drafted or ambiguous those terms may be.

The contrast with traditional jurisdictions is stark. New York considers any exculpation “contrary to public policy.” California and Texas prohibit exculpation for breaches committed intentionally, with gross negligence, in bad faith, or with reckless indifference. The difference isn’t academic—it determines whether trustees can be held accountable when wealth is mismanaged or business interests are compromised.

Related:Increased Planning Opportunities Using QSBS Exclusions

Silent Trusts: When Ignorance Definitely Isn’t Bliss

Among the most troubling developments is the rise of “silent trusts”—structures that keep beneficiaries uninformed about their interests, sometimes indefinitely.

South Dakota permits trusts to remain silent indefinitely through the appointment of a designated representative. Sample trust provisions give trustees complete discretion to select representatives, while explicitly stating that “The designated representative shall have no duty to monitor or evaluate the actions of the trustee" and “shall not be considered a fiduciary.”

The implications for family businesses are profound. When family members don’t know they have an interest in the family enterprise, younger generations can't develop an attachment to businesses they don’t know exist. They can’t gain the knowledge, skills, and relationships necessary for effective stewardship. The sudden revelation of significant wealth or business interests—without preparation, context or gradual education—can be psychologically destabilizing and undermine the very continuity these trusts were designed to protect.

Silent trusts may serve legitimate purposes in some contexts, but they create a fundamental tension: How can beneficiaries protect their interests when they don't know those interests exist?

The Accountability Black Hole: Directed Trusts

Directed trusts—where settlors allow trustees to appoint third-party agents, or “trust directors,” to make decisions about discrete trust functions—have become increasingly popular. Forty-seven states now authorize them. In theory, they allow families to separate investment expertise from administrative responsibilities. In practice, they can create dangerous accountability gaps.

Consider: Who is responsible when a non-fiduciary trust director gives a direction that a fully exculpated directed trustee follows, even when that direction amounts to gross negligence? In many jurisdictions, the answer is troubling: potentially no one. The trust director isn’t a fiduciary and owes no legal duties. The trustee is fully exculpated and protected from liability for following directions.

A trust director who isn’t a fiduciary faces no legal duty to honor family values. When decisions involve selling business interests, changing operational strategies or liquidating emotionally significant assets like art collections or family properties, this accountability void becomes acute. The directed trustee may have no basis to refuse even manifestly imprudent directions.

The Nuclear Option: Decanting Away Your Protections

Perhaps most insidious is how trustees can use “decanting”—transferring trust assets to a new trust with different terms—to eliminate protections the original settlor carefully built in.

The presentation exposes a troubling two-step strategy: Step 1: Change the trust’s situs/governing law to a decanting-friendly state. Step 2: Decant the trust under the new state’s permissive decanting scheme.

Through this process, a trustee could accomplish objectives that would be prohibited under traditional restrictions, such as creating silent trusts, adding broad exculpatory clauses, increasing trustee compensation, or adding trustee indemnification provisions.

The irony is sharp: Decanting was originally developed to allow trustees to update trusts to better serve beneficiaries. It has become, in some hands, a tool to insulate trustees from accountability and override settlor intent. A trust drafted with strong beneficiary protections can be transformed—without beneficiary knowledge or one offering minimal safeguards.

What Family Business Owners Must Do Now

For families seeking to preserve control of operating businesses, art collections, vineyards and other complex, emotionally significant assets across multiple generations, the traditional trust framework, even a well-crafted one, may prove fundamentally inadequate without careful drafting that anticipates these risks.

For New Trusts:

Consider these essential protections when establishing new trusts:

Explicitly restrict decanting in the trust instrument itself. Restrict the ability to change trust situs or governing law. Limit exculpatory clauses to only cases of willful misconduct and gross negligence.

Require phased disclosure of trust information calibrated to beneficiary involvement. If using directed trusts, require that the directed trustee or agent act as a fiduciary with full fiduciary duties. Include specific provisions preserving family business values and mission.

Include enforcement mechanisms that give beneficiaries—or independent trust protectors—standing to challenge breaches without first exhausting administrative remedies that may not exist.

For Existing Trusts:

If your client’s wealth is already held in trust, vigilance is essential:

Be alert to notifications of proposed decanting or situs changes. Request regular accounting and reports, even if they are not provided automatically. Consider whether your client’s trust should be reformed through judicial modification or decanting—but only to add protection, not remove them.

Beyond Traditional Trusts:

For families with significant operating businesses or complex assets, legal structures alone are insufficient:

Develop family constitutions that articulate shared values, decision-making processes, and conflict resolution mechanisms. Consider graduated revelation of information calibrated to beneficiary age and maturity. Make distributions or governance roles contingent on completing educational programs about the business and family governance.

Create parallel governance structures—family councils, advisory boards, or family assemblies—that operate alongside legal entities. These can preserve family cohesion and shared purpose even when legal protections prove inadequate.

The Bottom Line

The erosion of fiduciary duties represents a critical moment for trust law and family wealth planning. Whether this moment leads to the collapse of trust as a meaningful legal instrument or to the evolution of more sophisticated, resilient governance structures will depend on the choices made by settlors, trustees, beneficiaries, and policymakers in the coming years.

For many trusts, the erosion of fiduciary duty is already complete. The question is whether your planning documents anticipated this shift—or whether your client's family's wealth and legacy remain dangerously unprotected.