Private Trust Companies: The Best Tool for Intergenerational Wealth Management
As Featured on
Contents
- What Is a Private Trust Company?
- How Private Trust Companies Work
- Why Consider a Private Trust Company?
- Drawbacks of Private Trust Companies
- Where to Set Up Your Private Trust Company
- US States
- International Options
- How PTCs Compare to Other Options
- Who Should Consider a Private Trust Company?
- Setting Up a Private Trust Company: The Process
- Rules and Requirements for PTCs
- State-Regulated PTCs in the US
- Family Governance: Making Your PTC Work
- Practical Considerations
- Common Challenges When Implementing a PTC
- Options for Families With Less Than $100 Million
- Real-World Scenarios: When PTCs Make Sense
- Tax Benefits and Considerations
- Weathering Economic Storms With a Well-Designed PTC
If you’ve worked hard to build substantial wealth, you’re probably thinking about how to protect it – not just for yourself, but for your children and grandchildren. One question we often hear from our clients is: “Who can I trust to manage all this when I’m gone?“
For some families, the answer is to create their own private trust company.
In this article, we’ll explore what private trust companies are, how they work, and whether one might be right for your family’s wealth protection strategy.
What Is a Private Trust Company?
A private trust company (PTC) is simply a company you create to serve as the trustee for your family’s trust or trusts. Unlike big banks or trust companies that serve thousands of clients, your PTC is not open to the public and only serves your family.
Think of it as having your own personal, legal entity that focuses exclusively on your family’s planning needs.
Families often establish PTCs in jurisdictions with favorable trust laws, such as South Dakota or the Cayman Islands. While they’re most commonly associated with estates worth $100 million or more, families with less wealth may still benefit – especially when privacy, family governance, or long-term succession are top priorities.
How Private Trust Companies Work
Here’s how a PTC works in plain language:
- You create a company in a jurisdiction with good trust laws.
- You appoint a board of directors – usually a mix of family members and trusted professionals.
- The PTC oversees one or more family trusts, hiring external advisors as needed.
- Unlike an individual trustee who might retire or pass away, the PTC can operate indefinitely, preserving continuity across generations.
- Family members maintain influence through board roles and advisory committees, while professionals help manage risk and ensure fiduciary standards are met.
The big advantage? So long as your PTC meets ongoing corporate maintenance, compliance, and governance obligations, in the appropriate jurisdiction, it can last indefinitely across generations.
Why Consider a Private Trust Company?
1. Keep Control in Your Family
The biggest reason families create PTCs is to keep control. Your family members can serve on the board and various committees, giving them direct say in how your wealth is managed and distributed.
This means you can:
- Invest according to your family’s values and philosophy.
- Pass down not just your money, but your approach to handling it.
- Get younger generations involved in learning wealth management.
- Stay flexible as your family’s needs change over time.
2. Better Privacy Protection
Big trust companies have hundreds of employees and thousands of clients. Your private trust company would handle only your family’s affairs, which means fewer people knowing your business.
For wealthy families, especially those with public profiles, this privacy can be extremely valuable.
3. Handle Complex Assets Better
PTCs really shine when dealing with complex or unusual assets that big banks might not want to touch:
- Family businesses.
- Unique real estate holdings.
- Private equity investments.
- Art collections.
- International holdings.
Your PTC can take a more personalized approach to managing these special assets.
4. Manage Wealth Across Generations
PTCs are built for the long haul. They provide:
- Consistent management across decades.
- A framework for teaching future generations about wealth.
- Ways to handle family disagreements before they become problems.
- Balance between current needs and long-term preservation.
5. Coordinate Charitable Giving
It’s common for wealthy families to be deeply involved in philanthropy. A PTC can handle both your investments and your charitable giving, allowing for:
- Coordinated giving strategies.
- Family involvement in philanthropy decisions.
- Management of family foundations.
- Measuring the impact of your charitable work.
6. Combine Professional Management with Family Input
PTCs give you the best of both worlds: professional wealth management with family oversight. This hybrid approach often leads to better decisions than either family members or outside professionals would make on their own.
Drawbacks of Private Trust Companies
1. They're Expensive
Creating and running a PTC isn’t cheap. The costs include:
- Legal fees for setting up and staying compliant.
- Licensing requirements (unless “exempt” as outlined below).
- Salaries for professional staff.
- Office and operational expenses.
- Insurance for directors and officers.
These costs typically make PTCs practical only for families with at least $100 million in assets. That said, families with complex financial situations or unique asset holdings may find value in a PTC even at lower asset levels.
2. Complex Regulations
PTCs must follow a maze of regulations, including:
- State, local, and international trust company rules.
- If your PTC holds foreign accounts or assets, FATCA (Foreign Account Tax Compliance Act) and other international compliance rules may apply.
- Anti-money laundering requirements.
- Fiduciary duty standards.
Staying on the right side of all these rules requires ongoing legal support, adding to the cost.
3. Family Conflicts Can Arise
When family members work together on a PTC board or committees, disagreements can happen about:
- How to invest the money.
- Who gets trust distributions and how much.
- Which family members get to serve in key roles.
- How to plan for leadership succession.
Without clear rules for handling conflicts, these disagreements can damage both the PTC and family relationships.
4. Rules Can Change
Laws and regulations around PTCs can change, potentially affecting how they operate.
Where to Set Up Your Private Trust Company
The location you choose for your PTC matters a lot. Here are some popular options:
US States
Several US states have created favorable laws for PTCs:
South Dakota
- No state income tax.
- Strong privacy laws.
- Flexible trust rules.
- Reasonable regulatory requirements and low capital requirements for PTCs.
- No rule against perpetuities – a South Dakota trust can literally last forever.
Nevada
- No state income tax, estate tax, or inheritance tax.
- Good asset protection laws.
- Minimal regulatory burden.
- Strong privacy protections.
- No rule against perpetuities.
Wyoming
- No state income tax.
- Low setup and maintenance costs.
- Minimal disclosure requirements.
- Strong LLC protections (which can be utilized in trust structures).
- Rule against perpetuities allows trusts to last up to 1,000 years after the trust’s creation.
Delaware
- Well-established legal framework.
- Sophisticated courts issuing well-reasoned decisions.
- Flexible trust laws.
- Business-friendly environment.
- No rule against perpetuities for trusts.
International Options
For families with many international assets (or international trusts holding international assets), it can sometimes make sense to set up your Private Trust Company offshore. Some jurisdictions include:
Cayman Islands
- No income or capital gains taxes.
- Strong financial services industry.
- Well-established trust laws.
- Professional service providers.
Jersey (Channel Islands)
- Robust legal and regulatory framework.
- Long-standing reputation in trust and fiduciary services.
- No capital gains or inheritance taxes.
- Political and economic stability.
- Convenient time zone for Europe
Bahamas
- No income, capital gains, or inheritance taxes on trusts.
- Established trust legislation.
- Professional service providers.
- Close to the US.
The right location depends on your family’s specific situation and goals. Talk to your advisor about which option makes the most sense for your wealth protection strategy.
How PTCs Compare to Other Options
Let’s compare PTCs to other ways of managing family wealth:
Individual Trustees vs. PTCs
Individual Trustees
- Cheaper to set up.
- Simpler to establish.
- More personal relationship.
- Limited lifespan, although a trust may provide for the appointment of successor trustees.
- Potential conflicts of interest.
Private Trust Company
- Can last indefinitely so long as they’re maintained.
- Professional management.
- Formal governance structure.
- More expensive to set up and run.
- Better continuity across generations.
Big Banks vs. PTCs
Big Banks as Trustees
- Already have systems and staff in place.
- Heavily regulated entities with established procedures.
- No setup costs.
- Limited flexibility for unique assets.
- One-size-fits-all approach.
Private Trust Company
- Customized for your family’s needs.
- Family involvement in management.
- Greater flexibility.
- Higher costs to establish.
- More control over decisions.
Family Office vs. PTC
Family Office
- Provides comprehensive wealth management.
- Less regulatory complexity than a PTC.
- Easier to establish.
- Not specifically designed for trustee functions.
- Less formal governance than a PTC (usually anyway).
Private Trust Company
- Focused specifically on trustee services.
- More regulated than a typical family office.
- Better suited for serving as trustee for multiple trusts.
- More formal governance structure.
- Can be part of a broader family office structure.
Many families with significant wealth use a combination of these approaches – for example, they might establish both a family office and a PTC, with the family office handling day-to-day wealth management and the PTC serving as trustee for family trusts.
Who Should Consider a Private Trust Company?
PTCs aren’t for everyone. They make the most sense for:
- Very wealthy families – Typically those with $100 million or more in assets.
- Families with complex assets – Such as operating businesses, international holdings, or illiquid investments.
- Families planning for multiple generations – Those focused on preserving wealth far into the future.
- Privacy-conscious families – Those who prefer to keep financial matters strictly within the family.
- Philanthropic families – Those who want to coordinate charitable giving with wealth management.
- Families with strong investment philosophies – Those who want direct control over investment approaches.
If you don’t fit these criteria, other wealth protection strategies (such as individual trustees or professional trustee firms) probably make more sense for you.
Setting Up a Private Trust Company: The Process
Here’s what’s involved in creating a PTC:
1. Planning First
Before you start, you’ll need to:
- Define what your family wants to accomplish.
- Identify which assets the PTC will manage.
- Decide on the governance structure.
- Choose where to set it up.
- Develop policies for investments and distributions.
This planning stage is crucial and should involve key family members and professional advisors.
2. Legal Formation
The formation process typically includes:
- Creating the legal entity (corporation or LLC).
- Writing bylaws or operating agreements.
- Setting up a board of directors.
- Creating committee structures.
- Developing policies and procedures.
- Getting necessary regulatory approvals and licensing.
3. Operational Setup
Once legally established, your PTC needs to:
- Hire key staff.
- Set up office space (or virtual presence).
- Implement accounting and reporting systems.
- Create investment policies.
- Establish distribution procedures.
- Set up compliance systems.
4. Moving Trusts to the PTC
Existing trusts need to be reviewed and potentially modified to:
- Appoint the PTC as trustee.
- Ensure they work with PTC governance.
- Address any jurisdiction issues.
- Optimize tax efficiency.
- Maintain protections for beneficiaries.
5. Ongoing Governance
Running a successful PTC requires:
- Regular board and committee meetings.
- Professional investment management.
- Compliance with regulations.
- Family communication and education.
- Periodic review of governance structures.
- Planning for leadership succession.
Rules and Requirements for PTCs
The regulatory requirements for PTCs vary depending on where you set them up:
State-Regulated PTCs in the US
If you establish your PTC in a state with dedicated PTC laws, you’ll typically need to:
1) Maintain Minimum Capital
- South Dakota: $200,000 minimum.
- Nevada: $300,000 minimum.
- Wyoming: $500,000 minimum.
- These funds are typically expected to be held in approved, low-risk investments to ensure the PTC’s financial stability.
2) Submit to Regulatory Reviews
- Most states that regulate PTCs require periodic examinations – though some offer unregulated or exempt options for truly private family trust companies.
- These reviews check governance, operations, and compliance.
- They might happen annually or every few years, depending on the state.
3) Keep Detailed Records
- Written policies for all key functions.
- Minutes of all board and committee meetings.
- Annual financial reports for regulators.
- Records of all trust transactions and decisions.
4) Manage Conflicts of Interest
- Formal policies for identifying and managing conflicts.
- Procedures for when affected directors should step aside.
- Documentation of all conflict management decisions.
- Independent director (professionals not related to the family) involvement to ensure impartiality in conflict situations.
Family Governance: Making Your PTC Work
For a PTC to succeed long-term, good family governance is essential:
1. Clear Roles and Responsibilities
Effective PTCs keep clear boundaries between:
- Ownership (shareholders).
- Governance (board of directors).
- Management (executive team).
- Beneficiary interests (trust beneficiaries).
This separation helps prevent conflicts and ensures professional oversight.
2. Clear Decision-Making Processes
Well-run PTCs establish clear processes for:
- Investment decisions.
- Distribution approvals.
- Policy changes.
- Exception handling.
- Emergency actions.
These processes should be written and consistently followed.
3. Include Independent Directors
Having independent directors on the PTC board provides:
- Objective perspective on family dynamics.
- Professional expertise in key areas.
- Help with resolving conflicts.
- Continuity during family transitions.
Successful PTCs typically include at least 40% independent directors on their boards.
4. Plan for Succession
PTCs need plans for who will take over key roles when key personnel retire or step down:
- Board positions.
- Committee membership.
- Executive management roles.
- Technical expertise.
- Knowledge transfer.
Without proper succession planning, a PTC may not achieve its long-term goals.
5. Educate Family Members
Successful PTCs invest in educating family members about:
- Financial basics.
- How trusts work and their benefits.
- Investment principles.
- Responsibilities that come with wealth.
- Family legacy and values.
These education programs help prepare future generations for their roles in the PTC
Practical Considerations
Before starting a PTC, families should think about several practical factors:
1. It's a Long-Term Commitment
A PTC represents a significant long-term commitment:
- Setting it up typically takes 6-12 months.
- The real benefits often take years to see.
- The structure is designed to last for generations.
Be prepared for this long-term horizon and don’t expect quick results.
2. There's Substantial Paperwork
Running a PTC involves significant administrative work:
- Regular board and committee meetings.
- Detailed documentation of decisions.
- Financial reporting and audits.
- Compliance monitoring.
- Investment performance tracking.
These requirements demand a lot of time from both family members and staff.
3. Family Needs Change Over Time
As families grow and change over generations, their needs evolve. For instance:
- First generation often focuses on business transition.
- Second generation typically emphasizes preserving wealth.
- Third generation may become more interested in philanthropy.
- Fourth generation might struggle with family identity.
This, of course, is based on a stereotype and every family is very different. But one thing is true regardless — needs change and a successful PTC must adapt to these changes while providing a steady hand.
A good trust company to help govern a family’s wealth can avoid the “clogs to clogs in three generations curse”.
4. Choosing the Right Advisors Is Critical
The advisors who help set up and run your PTC will greatly impact its success:
- Trust and estate attorneys.
- Tax professionals.
- Investment advisors.
- Compliance specialists.
- Family dynamics consultants.
Look for advisors with specific PTC experience, as general wealth management expertise might not be enough.
Common Challenges When Implementing a PTC
When setting up a PTC, families often face several common challenges:
1. Managing Family Dynamics
Family relationships can complicate PTC operations through:
- Unresolved conflicts between generations.
- Different views on wealth management priorities.
- Varying levels of financial knowledge among family members.
- Competing needs between current beneficiaries and future beneficiaries.
Successful PTCs often work with family dynamics experts during setup to address these issues early.
2. Technology and Security Needs
Modern PTCs need robust technology systems for:
- Secure document storage.
- Financial reporting.
- Communication with family members.
- Investment tracking.
- Cybersecurity and data protection.
These systems can be expensive, especially for PTCs that manage complex or international assets.
3. Keeping Up With Changing Rules
The rules around wealth management keep evolving:
- More global information sharing.
- Growing transparency requirements.
- Changing trust and tax laws.
- New ownership reporting rules.
PTCs must stay on top of these changes, which often requires ongoing professional help.
Options for Families With Less Than $100 Million
If your family has significant wealth but not quite enough for a traditional PTC, consider these alternatives:
1. Domestic Asset Protection Trusts
Domestic Asset Protection Trusts split up trustee responsibilities:
- An administrative trustee handles administrative functions.
- An investment trustee directs investments.
- A distribution trustee advises on beneficiary distributions.
This gives you a number of PTC benefits without the full regulatory burden.
2. Trust Protector Structures
Adding trust protectors to traditional trusts provides additional oversight:
- Protectors can remove and replace trustees.
- They can modify certain trust terms as circumstances change.
- They provide oversight without a full PTC structure.
In fact, for most clients concerned about oversight and thinking about a Private Trust Company, a protector is often enough… and much lower cost.
(Note: We’re often willing to serve this role for established clients.)
Real-World Scenarios: When PTCs Make Sense
Let’s look at some common situations where a private trust company might be the right solution:
The Business Transition Family
The Andersons built a successful manufacturing business worth $300 million. With three children (only one working in the business) and seven grandchildren, they’re concerned about:
- How to transition business ownership fairly.
- Providing for family members not in the business.
- Preventing future family conflicts over business decisions.
A PTC, together with a number of trusts, could help by:
- Creating separate pools for business and non-business assets.
- Establishing clear governance for business ownership.
- Setting distribution policies that treat all family branches equitably.
- Providing a forum to address concerns before they become conflicts.
The Philanthropic Legacy Family
The Wilsons have accumulated significant wealth and want to make a lasting charitable impact. Their goals include:
- Supporting multiple causes they care about.
- Involving future generations in philanthropic decisions.
- Creating a sustainable giving program that lasts beyond their lifetimes.
- Balancing charitable goals with family needs.
A PTC could help by:
- Coordinating family foundations with personal trusts.
- Creating a structured process for philanthropic decisions.
- Educating younger generations about effective giving.
- Balancing philanthropic assets with family wealth preservation.
Tax Benefits and Considerations
While Private Trust Companies (PTCs) are not primarily established for tax planning, they can play a valuable role within a broader US tax strategy.
From a US tax perspective, PTCs can help with:
Estate Freeze Techniques
A PTC can help implement sophisticated estate freezing strategies that:
- Lock in current valuations for estate tax purposes.
- Shift future appreciation to younger generations.
- Utilize generation-skipping tax exemptions efficiently.
Charitable Planning Integration
For philanthropically-minded families, PTCs can coordinate charitable strategies that:
- Maximize income tax deductions.
- Reduce estate tax exposure.
- Create lasting charitable legacies.
Business Succession Planning
When family businesses are involved, PTCs can help with tax-efficient transition planning:
- Utilizing valuation discounts appropriately.
- Implementing grantor retained annuity trusts (GRATs) and similar vehicles.
- Coordinating business governance with trust ownership.
A private trust company gives you the best of both worlds – your family stays in control while professional managers handle the details. For the right families, it’s a powerful way to protect your wealth and values for future generations.
Weathering Economic Storms With a Well-Designed PTC
Today’s world makes protecting your hard-earned wealth more challenging than ever. Higher taxes, complex rules, and economic uncertainty threaten what you’ve built. A well-designed PTC can help you weather these storms while securing your family’s future.
Want to find out if a private trust company could work for your family? Talk to one of our Wealth Protection Associates. We’ve been helping American investors protect their assets for decades and can help you figure out if a PTC fits your needs.
Get in touch today to schedule a no-obligation consultation.
About The Author
Need Help?
We have 40+ years experience helping Americans move, live and invest internationally…
Need Help?
We have 40+ years experience helping Americans move, live and invest internationally…
As Featured on
