What Is a Private Trust Company?

A private trust company or family trust company is an estate planning tool that can be used to preserve wealth. This type of trust entity is most often used by high-net-worth and ultra-high-net-worth individuals. For example, someone who runs a family-owned business and has $150 million in assets may choose to establish a private trust company versus a revocable living trust. Creating a private or family trust company can offer certain benefits for estate planning, though it’s important to consider the legal implications and costs of creating 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 in terms of what it’s designed to do. For example, a private family trust company may:

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

The difference is that the family members themselves may play a central role in decision-making. Additionally, a private trust company has fiduciary status, whereas a family office does not.

How a Private Trust Company Works

A private trust company is established to act as the trustee for one or more family trusts. State regulations typically require that the trust be administered by a licensed fiduciary. 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.

In terms of ownership structure, private trust companies may be held by the establishing family, another trust or a foundation. 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. Unregulated private trust companies can be established 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 for establishing a private trust company.

As with other types of trusts, a private trust company is created through a legal document. This document details how the company should be managed. Specifically, that includes:

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

Private trust companies are designed to preserve ownership of family wealth, which may include business assets, real estate and alternative assets such as hedge funds or private equity. These assets are managed by the trustee under the wishes of the family. Trustees must follow fiduciary standards and are personally liable for decisions made when acting in that capacity.

Family members can participate in the day-to-day trust management, though it’s more common for this to be handled by the trustee. That allows the family to focus on other activities related to wealth preservation, philanthropy or other financial goals.

Advantages of a Private Trust Company

By establishing a PTC, families can ensure that their unique values, goals, and preferences are at the forefront of decision-making processes. This personalized service allows for more flexible and responsive management of assets, ensuring that the family’s financial objectives are met with precision and care. Private trust companies can offer some unique advantages to families that may not be afforded by other trust structures.

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
No need to meet SEC registration requirements
Increased flexibility about decision-making and asset management

Private family trust companies can also eliminate headaches surrounding succession planning. Since the trust company is designed to be a permanent trustee, there’s no need to name one or more successor trustees. Having the same trustee means there’s no learning curve to tackle with regard to understanding the family’s needs and objectives.

Overall, private trust companies allow families to leave most of the heavy lifting involved in estate planning to someone else while still having the ability to be involved in decision-making. This type of trust company can work in tandem with a family office or serve as a replacement for the family office structure if necessary.

Disadvantages of a Private Trust Company

Private trust companies are not always right for every family situation. Before moving ahead with one, it’s important to understand the potential drawbacks:

Establishing a private trust company can carry high initial costs
Maintaining a private family trust company over time can also be expensive
They may not be suitable for families with a net worth below $50 million or $100 million
Potential for conflicts may arise when family members are involved in company management
Meeting regulatory, oversight and financial reporting requirements can be burdensome

A private trust company requires a larger commitment of time and money from the family members. Even though the trust company may take responsibility for managing and distributing trust assets or maintaining records, the family members may still play a part in handling communications or hiring and supervising employees.

How to Establish a Private Trust Company

The first step in establishing a Private Trust Company is selecting the appropriate jurisdiction. Different jurisdictions offer varying regulatory environments, tax implications, and levels of privacy. Popular jurisdictions for PTCs include the Cayman Islands, Bermuda and certain U.S. states like Delaware and South Dakota. Each location has its own set of rules regarding the formation and operation of PTCs, so it’s crucial to consult with legal experts who specialize in trust law to ensure compliance and optimize benefits.

Organizing a private trust company requires the formation of a corporation or limited liability company. Regulatory guidelines can require a minimum amount of capital to be contributed at this stage, which can be $200,000 or more. There are various legal and registration fees that must be paid, which can add another $20,000 or more to the total.

Depending on the jurisdiction, a PTC may require specific licenses to operate legally. This often involves demonstrating that the company has adequate financial resources, a sound governance structure, and qualified personnel to manage the trust’s affairs. Regulatory compliance is an ongoing process, requiring regular reporting and audits to ensure adherence to local laws and regulations. Engaging with experienced legal and financial advisors can help navigate these complexities and maintain the PTC’s good standing.

Setting up this type of trust entity is different from creating something like a revocable living trust or a simple testamentary trust. For that reason, it’s helpful to talk to a trust and estate planning expert and a financial advisor first. An estate planning attorney can walk you through the process of creating a private trust company, while a financial advisor can analyze your situation to determine if a family trust company is suited to your needs.

Bottom Line

A private trust company offers a unique and flexible solution for families and individuals seeking to manage their wealth with a high degree of control and privacy. Unlike traditional trust companies, private trust companies are typically established to serve a single family or a small group of related individuals, allowing for personalized service and decision-making that aligns closely with the family’s values and goals. This structure not only facilitates tailored wealth management strategies but also enhances confidentiality, as the operations and decisions remain within a close-knit circle.

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.