Date: Dec 03 2018
Private Trust Companies (PTCs) first drew industry attention when industry elder, Jay Hughes, in his book Family Wealth – Keeping It in the Family called out the structure as a powerful tool in long-term family governance. That was in 1997. Over the ensuing decades hundreds of families have formed a regulated PTC and, according to reports from Wyoming firms servicing these structures, a thousand-plus have formed unregulated PTCs.
With that said, has the potential of the Private Trust Company model to adapt and remain relevant to family inter-generational and enterprise needs been demonstrated in the families that are using the structure?
The simple answer is yes. So, why is that? Here are 5 reasons:
As a risk management tool, the PTC requires operational standards and oversight that protect the interests of the family without the complexity that often comes with SEC registration. Families frequently experience the benefit of more professional level services. The structure also provides the family more control over their trusts than a corporate trustee relationship and removes the risk inherent in an individual trustee role.
One of the most important aspects of the PTC structure is the ability to adapt to the changing needs of the family over generations.
- There is no standard governance structure. The governance model may begin with a core board and investment committee (or whatever is required by state jurisdictions). Over time, this model can expand to provide opportunities for generational participation, beneficiary development, and leadership development.
- Policies and services can adapt to increasing complexity within the family enterprise. PTCs are finding solutions to support entrepreneurship and opportunistic direct investing needs of families. And, of course, the PTC service support structure can be coordinated and realigned as the broader family enterprise changes.
- Beyond the family’s evolutionary needs, the PTC can also adapt to shifts in the regulatory environment. Early adopters of PTCs have evaluated options to change their state jurisdiction to more tax-friendly or collaborative locations driven by changes in the state where they formed or the family’s situation. In some cases, families have changed jurisdictions, and in others the review affirmed the family’s initial selection.
Originally PTCs were thought to be most applicable to families approaching G3 and G4 and beyond. In these cases, increasing complexity and the need to support a growing family tree are drivers to finding a support structure for expanding trust administration services, beneficiary development, and organized decision- making. That remains true. But these days, with more awareness of the PTC model, G1 and G2 families are considering and using the structure. In these situations, the consideration of a PTC may be driven by long-term risk strategy mentioned above but also as a tax, privacy or business ownership strategy, among others.
As the number of PTCs has increased so have professional service providers available as outsource providers. Outsourcing provides the opportunity to make the management and fulfillment of requirements simpler and less expensive than may be expected.
As an increasing number of states have modernized laws regarding PTCs, there are more options available to families to find the best environment for their family’s long-term needs. But allow me to wave a caution flag: this review and analysis is vital and complex. Families should seek experienced experts to advise on situs selection.
The PTC is a sustainable and relevant structure for multi-generational family needs due to the ability to adapt through thoughtful planning to the family’s enterprise strategy and generational evolution.
If you are forming or considering a PTC, or simply want to better understand your existing PTC structure, consider attending the FOX Private Trust Company Fundamentals Workshop. It brings together leading experts and executives to share their experience and insight about the special role of a PTC in the family enterprise.
- Private Trust Companies – A Practical Introduction to a Bespoke Solution: Miles Padgett, Kozusko Harris Duncan
- Home Away from Home: Factors to Consider When Choosing Where to Locate a Private Family Trust Company: Richard Johnson, Richard Hills, Michael Hopp- Waller Lansden Dortch Davis