What Is a Private Trust Company: Everything You Need to Know

What is a private trust company? It is a vehicle wealthy families use for the planning and establishment of a trust.3 min read

What is a private trust company? It is a vehicle wealthy families use for the planning and establishment of a trust. Establishing a private trust company is based on a variety of factors, including:

• The need to maintain a level of control on how the trust is created.
• The ability to preserve confidentiality.
• The benefit of a trustee having a working knowledge of assets and how they are managed within the family business.
• Trustees can respond quicker when commercial decisions must be made.

As a legal document, a trust is established to document fully how the management of all or a portion of the company should be handled. This may include:

• How assets will be managed.
• How assets will be distributed.
• Beneficiaries of assets now and in the future.
• The name of the person responsible for carrying out the trust instructions.

Advantages and Disadvantages of a Private Trust Company

When considering creating a private trust company, the advantages and disadvantages should be weighed. The advantages include:

• Family control of the company is allowed.
• A greater level of privacy is given.
• Liability protection is supplied.
• Trusts can be established in states with tax advantages specific to trusts, such as no income or capital gains taxes.
• Exemption from investment adviser registration with the Securities and Exchange Commission (SEC) when the trust is regulated by state law and meets the requirements of regulatory oversight.
• Provides more management flexibility for the investment of assets.

The disadvantages include:

• Private trust companies are seen as entities that are untested.
• When trustees are family members, there is an increased potential for conflict among family members.