Some states, including Wyoming, have authorized private trust companies (PTCs). A PTC is a business entity organized to provide fiduciary services to a family, which is broadly defined to include multiple generations and branches of an individual family. The PTC combines the structure and benefits of a corporate trustee with the flexibility of individual key advisors and family members participating in PTC operations and governance, as appropriate and consistent with tax objectives. It also allows the family or its trusts to own the trust company that serves as trustee of its family trusts.
A trustee has three key duties: invest trust assets, distribute assets to beneficiaries, and administer the trust. The PTC structure allows client families to allocate these three duties to dedicated committees or service providers. The PTC is operated by the family and its trusted advisors, often in conjunction with a family office and an administrative services provider. The PTC is managed by a Board of Managers or Directors, whose role is to provide oversight to the PTC. Investment activities are performed by an Investment Committee, comprised of family members and trusted advisors. Distribution activities are performed by a Distribution Committee, typically comprised of disinterested family members and trusted advisors. Administrative duties are performed by a family office, the administrative services provider, or a combination thereof.
When a PTC May Make Sense
- For families that own complex assets in trust, such as operating businesses, real property, concentrated positions, or alternative investments, the PTC Board and Investment Committee can manage assets that traditional trustees may find impracticable.
- The PTC may more efficiently govern complexity arising from multiple or complex structures by separating the different fiduciary tasks and allocating each to a party with the requisite expertise.
- As a business entity, the PTC enjoys a perpetual lifespan, streamlining succession planning and implementation.
- The PTC presents families with the opportunity to involve family members and trusted advisors through PTC Board and committee membership, which yields continuity of leadership, intergenerational knowledge transfer, and subject matter expertise.
Control & Engagement
- Families may enjoy more control through the ability to select each member of the PTC structure, including the board of directors, officers, and committee members.
- The PTC operating agreement provides formal structure and framework for family participation and facilitates opportunities for intergenerational education and collaboration with trusted advisors.
Cost Efficiency & Economies of Scale
- The PTC benefits from economies of scale and may therefore be more cost effective than traditional trustees as it lacks profit motivation and is typically operated at breakeven or a de minimis profit.
- Generally, families with trust assets in excess of $200M (possibly less if there is significant complexity or other non-financial benefits) are candidates to benefit from a PTC’s economies of scale.
- As a corporate or LLC structure, the PTC may limit the liability assumed by participants.
- Some trusted advisors may be able to participate in a PTC when otherwise they could not serve as trustee.
This presentation and its content are for informational and educational purposes only and should not be used as the basis for any investment decision. The information contained herein is based on publicly available sources believed to be reliable but is not a representation, expressed or implied, as to its accuracy, completeness or correctness. No information available through this communication is intended or should be construed as any advice, recommendation or endorsement from us as to any legal, tax, investment or other matters, nor shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained in this communication constitutes investment advice or offers any opinion with respect to the suitability of any security, and this communication has no regard to the specific investment objectives, financial situation and particular needs of any specific recipient. Past performance is no guarantee of future results. Additional information and disclosure on Pathstone is available via our Form ADV, Part 2A, which is available upon request or at www.adviserinfo.sec.gov.