You may have heard of trust companies when discussing estate planning or inheritance.
You might have heard wealthy people talk about trust companies managing their assets, or watched movies where heirs of a wealthy individual deal with trusts to get their rightful share of inheritance money.
Setting up a trust is considered good financial planning. You can also look at trust companies who can do the work of the trust and help smoothen the process of transferring assets or estates from one entity to the beneficiary.
First, let us understand what a it is.
So what exactly is a trust company?
A trust company is a corporation or a legal entity that has the fiduciary duty of managing the estate or assets of its client.
The client could be an individual, a company, or other such entity. Generally, a special branch/division or an associated company of a commercial bank offers the service of a trust company.
However, a trust company can also be run by an independent partnership or a law firm. A trust company administers the assets of the client and deals with the process for the eventual transfer of those assets to the rightful beneficiaries.
It is a custodian for asset management, share transfer, registration of beneficiary ownership, and any other custodial arrangements.
A trust company is a for-profit company. It takes out its fee (profits) from the assets that it manages or when the asset is transferred to the beneficiary.
Sometimes, instead of regular fees, a fixed amount is charged during the eventual transfer of assets. Fees for such a companies range anywhere between 0.2% to 2% of the total assets managed.
The actual percentage depends on the size of the assets. It is important to note that a trust company does not own any of the assets that it manages.
The company simply has the legal obligation to take care of and oversee the assets that its client has assigned to it. The assets are normally held in an actual trust.
The company is simply the trustee of those assets. A trust company employs professionals such as financial planners, CPAs, attorneys, portfolio managers, trust officers, real estate professionals, tax professionals, and other admin staff.
A company may require that every client have a minimum net worth of $500,000. So, inquire about such minimum requirements when you do your research.
They come in different sizes and offer a variety of services. Things like customer service levels provided and fees charged are also different for different trust companies.
Do note that larger firms may have more products and services. Their brand and presence may be deeper than smaller companies.
However, large trust companies will not easily match the level of service and the personal touch that a smaller firm can provide.
Services Offered by Companies
There are many trust companies that offer a host of services. Some of the larger firms have been around for a while and offer a lot of products and services.
The most common service provided by trust companies is the management of investments which are placed in a trust created by the client.
The portfolio could have instruments like stocks, mutual funds, derivates, real estate, etc. Some trust companies also provide additional services like management of limited partnerships, natural resources, hedge funds, private equity funds, and other alternative asset classes.
Other services offered by trust companies may include safekeeping via secured vaults. Clients can store valuable assets like jewelry and precious metals.
Financial planning, retirement planning, and insurance are commonly sought as well.
They can manage retirement accounts, educational trusts, marital trusts, qualified personal residence trusts, QTIP trusts, incentive trusts, generation-skipping trusts, intentionally defective trusts, charitable trusts, revocable and irrevocable trusts, living trusts, and testamentary trusts.
In the estate planning area, trust companies offer services such as estate settlement, titling and re-titling of assets, valuation of assets, dispersion of assets, preparation of estate tax returns, expense and debt payment, and any other service related to the transfer of assets from a deceased client to his/her heirs.
They work not just with the client, but also with the heirs of the clients since they are the recipients of any asset transfer.
They can also offer a lot to corporate entities. They can manage the retirement planning process for the company’s employees.
Services could include investment advice, plan enrollment, investor education workshops, asset custody, customer service, etc.
It can basically act as one point of contact for all the retirement planning needs. Trust companies can also assist a company with the issuance of corporate debt.
It can also act as an independent party that administers the disbursement of interest payments to the bondholders.
The trust company can ensure that the covenants of the bond are complied with by the issuer (which in this case is the client company).
Why use such a company?
A trust company can take care of assets, tax procedures, and legal issues. It is like a one-stop shop for wealthy individuals or anyone who does not want to run around and deal with different professionals such as a financial planner, an accountant, a lawyer, or any other professional.
A trust company can manage a host of issues for the client and take actions which secure the financial well-being of the client. Thus, time and effort can both be saved.
Clients who do not feel comfortable or confident of making big financial decisions can also seek the services to manage financial matters for them.
Besides financial and investment planning, trust companies can help with estate planning. If there are multiple heirs, or if there are no heirs, or no responsible heirs, then in those cases, assigning the trust company as the successor trustee of the trust created by the client can smoothen the process of succession.
Having a trust company can minimize or eliminate any family squabbles related to inheritance of assets as the trust company can play the role of a neutral third party.
If there are no heirs, then the trust company can manage the assets of the trust in compliance with the terms and conditions of the trust and as per the wishes of the deceased client.
If you need help setting up trusts or connecting with companies that can deliver solutions that you may be seeking for estate planning, financial planning, corporate processes, or any other financial matter, reach out to us and our team will guide you accordingly.