Trust companies run by banks or other corporate entities
have long helped rich families preserve their assets for the long term. But
wealth managers and lawyers who specialize in trusts say they are seeing more
families that typically have assets of $100 million or more—mainly in
family-owned businesses or partnerships—setting up their own private trust
companies. Doing so, the advisers say, gives the families more control over the
trust’s investment decisions, and ensures more personal service than if the family
uses a traditional trust company.
Indeed, experts say some families that use banks as trustees
complain about conflicting priorities when it comes to investing trust assets.
Bank trustees, for example, can favor funds run by their own bank. Strictly
following a fiduciary’s responsibility to act in their client’s best interest,
bank trustees also sometimes prefer only the most conservative investments,
which can limit the family’s returns.
Private family trust companies can take more risks than bank
trustees sometimes are willing to, says John Duncan, a Chicago lawyer who
specializes in setting up private trust companies for families. Private family
trust companies work best when the family members generally get along.
Having a corporate structure often helps ease liability
concerns for family and other individuals being asked to take a leadership role
in the trust. The family’s private trust company can purchase
director-and-officer liability insurance to give protection to decision makers.
State laws regarding regulation, taxation and asset
protection of private trusts vary, reflecting efforts by some states to court
this growing business. Two states, Nevada and Wyoming, allow private trust
companies to go unregulated.
Most states that allow private family trust companies have
minimum capital requirements of $500,000. But when a trust serves only the
family and its related interests, and is regulated by a state, it doesn’t have
to register as an adviser with the Securities and Exchange Commission.
This year, Florida became the latest state to allow private
family trusts. Others include Nevada, New Hampshire, South Dakota, Tennessee,
Texas and Wyoming.
Families wishing to set up a private trust company don’t
have to live in the state where it is based. The trust can be in whatever state
offers the most advantages and have offices in another state. Mr. Duncan says
he has worked with New York families who set up private trusts in, say, Nevada,
and an office in New Jersey in an effort to benefit from more favorable tax
rules than are available in their home state.
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