What Is a Trust Company?
Let me tell you directly: a trust company is a legal entity that steps in as a fiduciary, agent, or trustee for you or your business. You retain it to handle the administration, management, and eventual handover of assets to your chosen beneficiaries.
It acts as the custodian for various setups like trusts, estates, custodial arrangements, asset management, stock transfers, beneficial ownership registration, and similar financial structures.
Key Takeaways
Understand this: a trust company is fundamentally a legal entity serving as a fiduciary, agent, or trustee for personal or business trusts. It's tasked with administering, managing, and transferring assets to beneficiaries. It custodians trusts, estates, and more, all managed for a fee that the company deducts annually or at transfer.
How a Trust Company Works
While trusts often name an individual as trustee, you can appoint a trust company instead, especially if no reliable family member is available. For instance, it can step in as successor trustee upon the grantor's death, managing assets per the trust's terms.
The company doesn't own your assigned assets, but it has a legal duty to care for them on behalf of others. It manages these for a fee, deducted yearly or at beneficiary transfer. This applies to many trust types, including charitable ones.
Types of Trust Companies
A trust company or department is typically part of a commercial bank or financial institution, or it could be a standalone entity tied to a law firm or partnership. You'll find options varying in size and fees; larger ones offer more services but might lack the personal service of smaller firms.
Examples include Northern Trust, Bessemer Trust, and U.S. Trust under Bank of America. Their fees are often 1.00% to 2.0% of assets, scaled by trust size.
What Trust Companies Offer
Trust companies handle daily trust operations and provide services like wealth management for investment and preservation across generations, asset management including bill paying and check writing, brokerage with diverse investments, financial planning for extra fees based on needs, tax planning, and estate planning or settlement.
They also cover estate-oriented services such as guardianship and non-financial asset management.
Benefits of a Trust Company
As a fiduciary, a trust company must legally act in your best interests, so you can trust its decisions without fear of exploitation. If you're not savvy with markets, their investment services are practical. Hand over daily finances if you prefer not to manage them yourself.
Moreover, they serve as neutral parties to prevent family disputes over estates by distributing assets impartially.
What Does a Trust Company Charge?
Fees vary: some charge a percentage of assets, like 1% (ranging 0.25% to 2%), ideal for large or complex trusts. Others use a flat annual fee, better for minimal-management cases.
Who Regulates Trust Companies in the U.S.?
The Office of the Comptroller of the Currency (OCC), under the Treasury, charters and regulates them. Per the FDIC, those owned by bank holding companies fall under Federal Reserve supervision, and bank-owned ones are examined by the parent's regulator.
What Are the Assets of a Trust Company?
Most assets are those in client trusts where the company is trustee.
The Bottom Line
In essence, a trust company trustees and manages assets per trust terms for clients. It bundles services like administration, wealth management, tax prep, and planning in one spot for convenience. Note, you'll typically need a net worth of at least $500,000 to qualify.
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