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Who is a private trust company for?

The Private Trust Company is oriented to families with a high financial asset margin and offered to families who wish to see their assets pass from one generation to another, whilst still retaining control of the trust. Although this kind of trust is now becoming increasingly popular with high income families, it is important that anyone considering such an option for their family does their research first, so that they have full knowledge of the benefits and risks that are involved.

The simplest definition of a private trust company is this an institution with similar attributes to an individual trust. However, unlike an individual trust, it is maintained by the family. There is a level of control that can be maintained due to the way that it is constructed the industry design means that there can be managers, employees, overseers, etc, of the family trust company, as well as a board of directors.

One of the main attractions is that it establishes a family’s wealth over a period of time. This helps to encourage family involvement in future assets, whilst at the same time maintaining the assets that have already been acquired.

The main difference between the private trust company and a bank or individual trust is the way that the deposits and finances are handled. Whilst the assets of banks or individual trusts can only be accessed and handled by a sole person, the private trust company is different all the assets are dependent upon the structure and members within the company.

The main difference between the private trust company and a bank or individual trust is the way that the deposits and finances are handled. Whilst the assets of banks or individual trusts can only be accessed and handled by a sole person, the private trust company is different all the assets are dependent upon the structure and members within the company.

A private trust company can be useful for families with certain types of assets, such as a family-owned business, real estate holdings or partnership interests, which they wish to include in a trust, but do not wish to relinquish control to an independent trustee. Private trust companies allow families to obtain objective investment advice from managers that do not have an interest in the specific investment. This permits the family to select separate investment managers for specific asset classes. In addition, because family members can usually participate on the boards of private trust companies, they are able to provide family members with educational opportunities to assume active roles in managing the family’s ongoing investments and affairs.

The first and most important risk to consider is the cost of a private trust company. Generally speaking, it is very costly to establish one. Even if the business assets are from a well-established family business, it can be more costly setting up a new trust company than you expect. Bear in mind that a private trust company is the establishment of a company, which is usually an LLC, although this can vary depending on the jurisdiction. So ensure that proper documentation is in place for the company, as well as licensing, if that is applicable.

Private trust companies are not sole proprietary companies, as there are more individuals who are involved in the management of the assets. That said, the more opinions that are given, the more likely it is that conflict will arise. It may become increasingly difficult to maintain and manage the family assets if there are important differences between people within the company about how to distribute or invest funds.

If your private trust company has been established with a board of trustees, you should be extremely cautious about your overall status within that board, as an individual can be voted out of the company. Regardless of the assets a person has contributed individually, they can find themselves with no assets in the private trust company, should the board decide so.

Apart from the minimised control that an individual has within a private trust company, you also have to consider the potential tax margin. If a private trust company, or an individual within the private trust company, acquires a substantial amount of income for the company, then it is possible that the trust will suffer heavy taxation. The tax regulations of private trust companies, means you should not expect to have the kind of taxation leniency that is offered to other trusts or those in offshore banking.

Unregulated Trust Companies operate within the country and so are under the jurisdiction of that country. Generally speaking, there are no restrictions laid upon the family, and the trust is left to be operated by them.

Regulated trusts have a high level of regulations and stipulations, in a similar way to other financial institutions and organisations. Therefore, regulated private trust company face a more strenuous application process, and the reporting status must be maintained with the state.

First of all, the roles and responsibilities of each family member within the company need to be established in detail. If a trustee board is established, its responsibilities should be fully detailed to avoid any future legal issues. By ensuring that everything is kept strictly professional in this way, you can make sure that the assets are protected for generations to come.

However well-intentioned your plan is, you should make a realistic assessment to see if the family can handle all of the necessary areas for a company, including book-keeping, tax records and statistical analysis, which are all critical to ensuring that a private trust company avoids fees and undue taxation.