As a unique type of trustee, a private trust company (PTC) typically serves as a trustee for families with irrevocable asset protection trusts. The legal entity serves just one family, and each family member can be active in managing the company.
A private trust company is not for every family that possesses an incredible amount of wealth. However, your family might discover that the control, privacy, and flexibility offered by setting up a PTC is well worth the high costs and substantial responsibilities. Ultimately, a PTC is a sound financial strategy for wealthy families that want to protect assets for multi-generational transfers.
What are the Pros of Setting Up a PTC?
Since a PTC acts as the trustee of your assets, the assets receive protection from liquidation by creditors and lawsuit settlements. This is a common advantage of establishing a trust that protects personal and business assets. Two other benefits might make setting up a PTC the right financial move for your family.
A PTC that administers a trust typically enjoys a considerable amount of privacy. You face less strict reporting standards and do not have to deal with the burdensome regulations placed on public trust companies. Families that establish a PTC enjoy considerable control over their financial futures. Nonetheless, just a few states allow the formation of a PTC.
- New Hampshire
- South Dakota
Although privacy is a popular advantage of setting up a PTC, some states that allow the formation of a PTC define how many board members can manage it and whether the PTC can manage a dynasty trust that provides financial support for subsequent generations. Wyoming generally provides the least burdensome restrictions.
A PTC is a great way to pass on assets to future generations. Unlike a person, the company does not die, move away, or lose interest in managing the trust. It is a legal maneuver that ensures continuity.
Continuity requires a plan for succession that addresses both the management and the ownership of the PTC. Some families might find succession planning a daunting challenge, but creating a succession plan protects the assets in a PTC for generations to come.
What Are the Cons of Setting Up a PTC?
Establishing a PTC can bring two negative points into the debate.
Establishing a PTC requires hands-on management by most, if not all, family members. But some members of your family might not be interested in getting involved with the management of a PTC. In addition, if your family is considering setting up a PTC, you have to weigh the benefits of succession planning against the significant time commitment to administer the trust.
Here are just a few of the responsibilities your family must handle when managing a PTC:
- Administration of trust assets
- Distribution of trust assets
- Making investment decisions for each asset
- Maintaining the records required by state law
- Creation of a succession plan
- Frequently updating the succession plan
For families unwilling to fill these roles professional advisors can be utilized instead.
Consideration of Costs
The initial contributions of capital to a PTC can be more than $500,000 in some jurisdictions, or $0 in Wyoming, with maintenance fees beginning at $2,500 per year to maintain. You also have to consider operating expenses since you are creating a company to manage your trust.
- Filing fees
- Regulation requirements
- Business insurance
- Office space and equipment
- Travel expenses
Do You Need a Lawyer to Help You Set Up a PTC?
Your family’s financial goals and willingness to become active financial managers determine whether you should form a PTC. Because the laws vary among the states that permit the creation of PTCs, working with a family law attorney can help you make the right decision.
Contact an attorney at Cloud Peak Law Group to discuss forming a Private Trust Company today.