Posted on: August 1st, 2021
One of the more interesting ways that some wealthy families are addressing certain financial needs and concerns is through the use of private trust companies.
A private trust company is set up specifically to work with and serve a single family—somewhat similar to how a single-family office operates. Not surprisingly, the costs of creating and running a private trust company can be large, and the families that opt for this route are typically extremely wealthy.
The idea behind a private trust company is generally to help a wealthy family with estate planning and, often, business succession concerns (if there’s a family-run business involved). Private trust companies can also help with wealth and investment management as well as fostering shared financial values across multiple generations of a family. What’s more, a growing number of states have enacted legislation supportive of private trust companies, so they are gaining in popularity among wealthy families.
Of course, there are professional, non-private trust companies that aim to address the same issues for the wealthy. And an individual can also act as a family’s trustee. So what’s the appeal of going the private route?
There are several reasons that we see among families that create private trust companies.
In contrast, a private trust company’s board of directors is composed of trusted professionals of different ages and tenures who have a very deep understanding of the family and what matters to its members. The result is a form of “institutional memory” that can better ensure that decisions made reflect the intent, objectives and values of the family.
Additionally, using a private trust company may make it more difficult to pierce the corporate veil in regulated states. In some cases, private trust companies are not dealing with the same reporting requirements as public trust companies. Thus, the wealthy family might better maintain the confidentiality of information. Note: Each state that permits private trust companies has its own governing statutes.
Perhaps the most obvious issue that families notice when thinking about a private trust company is cost. Setting up a private trust company could potentially require an upfront infusion of capital that might add up to several hundred thousand dollars or more. There are also legal costs and registration fees that might hit tens of thousands of dollars. Ongoing costs (such as office space, salaries of any staff, regulatory reviews and so on) will also be constant expenses. The upshot is that a levelheaded look at costs—and a comparison between the costs of a private company and the costs of hiring a non-private company—should be key parts of the evaluation process for any family considering this route.
Important: Keep in mind that it may be possible to reduce some costs. A well-organized, streamlined private trust company that focuses on a family’s key needs may be run with a lower cost structure. If professionals are outsourced or hired only when needed, staff and payroll costs may also be mitigated somewhat.
Clearly, private trust companies aren’t for everyone—not even for every family that is wealthy enough to set up and maintain one. That said, they offer intriguing benefits and potential advantages over the more common approach of using a non-private professional trust company. It’s an option that some wealthy families should have on their radar screens as they seek to make smart financial decisions.
This report was prepared by, and is reprinted with permission from, VFO Inner Circle. AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.
Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures
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By Russ Alan Prince and John J. Bowen Jr.
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