What Is a Private Trust Company?

A private trust company, or family trust company, is an estate planning tool that people can use to preserve wealth. Most commonly, high-net-worth and ultra-high-net-worth individuals use this type of trust entity. For example, someone who runs a family-owned business and has $150 million in assets may choose to establish a private trust company instead of appointing an individual or corporate trustee to administer family trusts. Creating a private or family trust company can offer certain benefits, though it’s important to consider the legal implications and costs before establishing one.

A financial advisor can provide valuable guidance and insight as you develop and modify your estate plan.

What Is a Private Trust Company?

The terms private trust company, family trust company and private family trust company all refer to the same thing: a legal entity that offers fiduciary and trustee services to a single family group. Private trust companies are state-chartered, though state guidelines vary regarding their establishment and regulation.

A private trust company is similar to a family office because both can help oversee a family’s financial affairs. For example, a private family trust company may:

Manage investments
Perform accounting or recordkeeping services
Oversee and distribute financial assets on behalf of beneficiaries
Help with legacy planning

The difference is that a private trust company can serve as trustee and owes fiduciary duties in that role. In contrast, a family office generally provides administrative and advisory services.

How a Private Trust Company Works

A private trust company acts as the trustee for one or more family trusts. The company is designed to preserve ownership of family wealth, which may include business assets, real estate and alternative assets, such as hedge funds or private equity. The trustee manages these assets according to the terms of the trust. They must follow fiduciary standards and may be held liable for breaches of those duties.

A board of directors is appointed, which may or may not include members of the family that established the trust company. Family members can also serve on various committees related to the company’s administration and management. While family members can participate in the day-to-day oversight of the trust company, professional staff or outside advisors often handle day-to-day administration.

As with other types of trusts, a private trust company is created through organizational and governing documents. These documents establish how it will operate and serve as trustee for family trusts, addressing:

Who will be named as beneficiaries of the trust
How assets will be managed
How and when assets will be distributed to beneficiaries

In terms of ownership structure, the establishing family, another trust or a foundation can hold private trust companies. Private trust companies may be regulated or unregulated. A regulated private trust company offers trust services and is subject to state and/or federal laws. It’s possible to establish unregulated private trust companies in states that allow limited-purpose corporations.

Regulatory requirements vary from state to state, and not all states recognize this type of trust entity. However, it may be possible to establish a private family trust company in a jurisdiction other than where you live. Talking to a financial advisor can help you evaluate your options.

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Advantages of a Private Trust Company

Private trust companies can offer advantages that may not be available with individual or corporate trustees. Some of the chief reasons for considering a private trust company include:

Ability to maintain control of the trust company
Enhanced privacy protection
Potential tax advantages
Continuity of trust administration
Increased flexibility in decision-making and asset management
Option to remain involved in governance while delegating administrative responsibilities to professionals
Easier succession planning, since the trust company acts as an ongoing trustee

Disadvantages of a Private Trust Company

Private trust companies are not always right for every family situation. A private trust company generally requires a larger commitment of time and money from the family than many other trust arrangements. Even though the trust company may take responsibility for managing and distributing trust assets or maintaining records, family members may still oversee governance and supervise key decisions.

Before moving ahead with a private trust company, it’s important to understand the potential drawbacks, including:

High initial costs
Expensive ongoing costs to maintain the trust
Possible conflicts of interest if there is family member involvement in company management
Potentially burdensome regulatory, oversight and financial reporting requirements

How to Establish a Private Trust Company

The first step in establishing a private trust company is selecting the appropriate jurisdiction. Different jurisdictions have varying regulatory environments, tax implications and privacy protections. Popular jurisdictions include Delaware and South Dakota, along with certain offshore jurisdictions. Each location has its own rules regarding the formation and operation of private trust companies, so working with experienced legal counsel is essential.

Organizing a private trust company requires the formation of a corporation or limited liability company. Regulatory guidelines may require a minimum amount of capital and the payment of organizational, licensing and legal fees.

Depending on the jurisdiction, a private trust company may require specific licenses or regulatory approvals to operate. This often involves demonstrating adequate financial resources, an appropriate governance structure and qualified personnel. Regulatory compliance is an ongoing process that may include periodic reporting and examinations.

Setting up this type of trust entity is different from creating a revocable living trust or testamentary trust. For that reason, it’s helpful to talk to a trust and estate planning attorney and a financial advisor first. An estate planning attorney can guide you through the legal requirements. Meanwhile, a financial advisor can help determine whether a private trust company fits into your overall estate plan.

Bottom Line

A private trust company can provide families with greater control over trust administration while helping preserve wealth across generations. It may also offer continuity, privacy and flexibility that some families value. However, these entities can be costly and complex to establish and maintain. As such, they are generally most appropriate for families with substantial assets and sophisticated estate planning needs.

Estate Planning Tips

Consider talking to a financial advisor about whether a private trust company is something you may need. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A private trust company may not be suitable for the everyday person. But you can still use trusts for estate planning even if you have a smaller net worth. There are many types of trusts that you can use to protect assets and pass on wealth to loved ones. Keep in mind, however, that a trust is not a substitute for a last will and testament. Having a legal will in place is important for ensuring that your assets are distributed according to your wishes. If you have a simple estate, you can draft a will yourself using online will-making software.