While many states allow for the formation of PTCs, certain states have more favorable trust laws, taxation rates, and business-friendly environments. Some of the more popular states are Delaware, South Dakota, Wyoming, Nevada, and Alaska.
What Is a Private Trust Company?
The PTC can be formed either as a regulated or unregulated entity. While an unregulated trust company has fewer requirements to become active, over the long term, it is important that it implements similar governance standards as a regulated PTC. The PTC can serve as trustee for only one family, rather than being open to the public (serving multiple families).
PTCs create a permanent trustee that can adapt to changing family structures. In other words, this is a way to institutionalize the role of trustee and provide a fluid successor trustee—rather than continually having to make amendments as the participants change.
PTCs are organized under a separate corporate structure, with the individuals serving on the board, as managers of an LLC, and/or serving on various committees. The most common committees are established to provide recommendations regarding investments, distributions, audits, and philanthropy. PTCs will often use an administrative trust company to establish situs and to provide additional administrative functions. Additionally, they may hire professionals, such as an investment advisor, lawyers, and certified public accountants, to perform specific services, or have a family office execute on these decisions.
Risk Management Techniques for Private Trust Companies
The sole purpose of PTCs is to provide trust administration. It also handles certain other duties such as managing estates through the probate process, acting as a personal representative/guardian for a family member who may need additional oversight, and serving as a trust protector.
Just like any corporate environment, members of the board, managers of the LLC, and members of various committees can implement corporate governance protocols to reduce—but not eliminate—risk.
It is important for a family to dedicate the time and resources to their PTC, in order to implement risk management techniques such as:
- Implementing good corporate governance, including defining roles and responsibilities, ensuring integrating reporting procedures with timely decision-making, communicating effectively with decision makers and stakeholders, and ensuring regulatory compliance and accountability.
- Conducting and monitoring risk assessment plans that outline risks specific to the PTC and emerging risks such as economic, counter party, and cyber liability.
- Providing beneficiary education, with the goals to empower the next generation, prevent disputes, encourage better relationships, and work on succession planning.