Private Trust Companies are family-owned entities that combine the professionalism and continuity of a corporate trustee with participation in the governance and management of family assets.
For affluent families, the goal of strategic estate planning is to safeguard their assets while achieving tax advantages, privacy, and protection. However, this often requires surrendering some level of control over family assets to an external trustee, which can be a challenging decision. While some families opt for individual or corporate trustees to manage their estates, a third option is to establish a Private Trust Company (PTC).
A PTC is an entity owned by members of a family that serves as a long-term trustee of trusts specifically for the benefit of the family. This structure offers a unique blend of control and involvement, allowing family members to participate in governance and decision-making processes. Such involvement is subject to certain limitations necessary to avoid adverse tax consequences, but it provides a significant degree of influence and oversight compared to traditional trustee arrangements.
Advantages of a PTC
PTCs are a powerful tool for strategic estate planning, enabling high-net-worth families to exercise control, flexibility, and multi-generational involvement in managing their family wealth. Serving as the core entity for wealth management across generations, PTCs provide highly customized trust and investment services, ensuring effective oversight of family businesses, real estate investments, and other unique assets. By clearly separating responsibilities for family business decisions, PTCs help mitigate the risk of family controversies and disputes, and eliminate external influences on trustee decisions, maintaining family control over key decisions without outside interference.
In addition to the governance benefits, PTCs allow families to manage diverse assets collectively, creating pooled investment vehicles that minimize costs and provide access to asset classes or managers that might otherwise be unobtainable. For families with digital assets, PTCs offer a valuable solution by allowing these assets to be placed in trusts, providing tax benefits and enhanced privacy and asset protections while enabling the family to retain control over their cryptographic keys.
PTCs streamline decision-making for all trusts and entities, enhancing efficiency and minimizing costs. PTCs allow families to attract qualified decision-makers and offer them personal liability protection, ensuring that the best advisors are involved. In certain instances, PTCs can also achieve significant state income tax savings, leveraging tax advantages available in specific jurisdictions like Wyoming.
Family Participation
One of the primary objectives of using a PTC is to encourage family participation in managing generational wealth. PTCs allow family participation in governance and decision-making, rather than delegating these responsibilities to an external trustee. They can be integrated into a family office structure, defining family involvement and providing opportunities for shared decision-making and long-term continuity. PTCs empower family members to gain leadership experience, participate in investment decisions, and develop the skills necessary to manage generational wealth. Additionally, a foundation can be incorporated into a PTC structure to facilitate philanthropic endeavors and reinforce family values.
Why Not Individual Trustees?
While some families opt for individual trustees, there are several risks and limitations involved. Individuals may not have the necessary skills or experience to handle the myriad responsibilities of a professional trustee, and there is an increased risk of personal liability. Conflicts of interest can arise when individuals act in dual roles as directors of operating businesses and fiduciaries of trusts. The use of individual trustees may not be a viable long-term strategy due to retirement, disability, and death causing transition problems. It may also be difficult to find individuals who are willing to act as successor trustees.
Why Not Corporate Trustees?
In many situations, clients are well-served by the appointment of a traditional corporate trustee, but there are disadvantages. There is no family involvement in the selection of the corporate trustee’s decision-makers, and corporate trustees may be reluctant to administer closely-held or unique assets. The incentives of trustees and families may not align, resulting in a loss of privacy over family businesses and family affairs. Market forces can influence corporate trustee decisions and actions, leading to bureaucratic decision-making, turnover of management and staff, and potential changes in ownership of the corporate trustee, which may impact client service.
Why Wyoming?
When it comes to selecting a jurisdiction for establishing a PTC, Wyoming stands out as the clear leader. Wyoming's statutes offer a high level of flexibility, including 1,000-year dynasty trusts and directed trusts. Wyoming statutes facilitate trust migration and modifications through non-judicial settlements, and the state does not impose taxes on income, capital gains, gifts, or estates. These benefits extend to non-residents who place their assets in an irrevocable non-grantor trust. Wyoming also provides strong privacy laws, ensuring that trust details, including grantors, beneficiaries, and trust assets, are not part of the public record. In addition, Wyoming has robust asset protection laws that can safeguard assets from creditors and legal disputes.
Figure 1: Comparison of Trust Jurisdictions
Wyoming is particularly favorable for families looking to include digital assets in their PTC. The state's commercial and property laws recognize digital assets, affording them the same property rights and protections as other forms of intangible assets. Further enhancing its appeal, Wyoming recently enacted groundbreaking digital asset bankruptcy legislation that protects customers in the event of financial institution insolvency. This new law ensures that assets in "covered accounts" are shielded from being considered liabilities of the financial institution during bankruptcy, providing much-needed clarity and security for families managing digital assets.
Regulated vs. Unregulated
Wyoming is one of the few states that permit the establishment of both regulated and unregulated PTCs. Regulated or "chartered family” trust companies obtain a charter from the Wyoming Division of Banking. This can be a lengthy process and requires minimum regulatory capital of $500,000 as well as ongoing examinations. Unregulated or "private family” trust companies operate without a charter, are not subject to examinations by the Division of Banking, and are not required to maintain regulatory capital. While most families choose unregulated PTCs, a regulated version may provide additional protection against possible challenges to trust situs and help to ensure best practices. Wyoming law also allows a regulated PTC to serve as trustee for up to two unrelated families.
Regardless of the regulatory structure chosen, it is recommended to establish policies and procedures that adhere to sound fiduciary principles. These include formal acceptance of trusts, conducting annual investment reviews, maintaining accurate minutes of regularly held meetings, and implementing a robust distribution policy.
Typical PTC Structure
PTCs offer a flexible structure that can be organized either as a corporation, governed by a board of directors, or as an LLC, managed by a board of managers. This flexibility allows families to tailor the PTC to their specific needs and objectives.
Typically, PTCs are organized as an LLC and elect to be taxed as a corporation operating with minimal profits. Due to the associated costs and administrative requirements, PTCs are most suitable for families with substantial assets that can justify the expenses and family involvement. While a general guideline is that families with $100 million or more in assets are a reasonable threshold, this is not an absolute requirement. More important is the concentration of family wealth in complex or illiquid assets and/or the family’s desire for control in managing their wealth across generations.
Figure 2: Illustrative Structure of a Private Trust Company
Selection of the board, committee members, and officers can include family members or trusted advisors. However, it is important to consider potential adverse tax implications based on their jurisdiction of residence. Seeking advice from attorneys during the formation process and retaining their services on an ongoing basis can help mitigate such risks. While there are typically two committees at a minimum – distribution and investment – the structure can be customized to align with each family's specific goals.
Implementing a PTC
To fully benefit from the legal and tax advantages, PTCs should take all necessary measures to establish Wyoming as their situs. Best practices include establishing a bank or custody account in Wyoming, leasing office space, maintaining books and records within the state, and administering both the PTC and its underlying trusts in Wyoming. Often, Wyoming-based officers, board members, and committee members are incorporated into these structures.
The ongoing administration and compliance tasks are typically handled by family offices and third-party service providers. These responsibilities encompass thorough recordkeeping, expense payment, and tax reporting at both the PTC and trust levels. It is essential for PTCs to conduct regular committee and board meetings in Wyoming, maintain meeting minutes to document decisions, and develop and adopt budgets, among other necessary tasks.
Successful PTCs require a long-term commitment from families to collaborate effectively, share a common family mission, and address the needs of beneficiaries. As fiduciaries, PTCs have obligations to the trusts they serve and must fulfill their duties in a professional and responsible manner.
Conclusion
PTCs offer a powerful tool for strategic estate planning, enabling high-net-worth families to exercise control, flexibility, and multi-generational involvement in managing their family wealth. By establishing a PTC, families can tailor their estate planning strategies to meet their specific objectives while benefiting from favorable trust laws, tax advantages, and enhanced privacy and asset protections available in jurisdictions such as Wyoming.
*****
About Two Ocean Trust
Two Ocean Trust partners with families to manage multi-generational wealth. We deliver customized investment and trust solutions to ultra-high net worth individuals, family offices, and foundations.
Two Ocean Trust specializes in the administration of Wyoming Private Trust Companies, offering turnkey solutions which cater to the special needs of ultra-high net worth families. Our services include governance and regulatory compliance, Wyoming-based board members and officers, integrated custody and cash management solutions, consolidated reporting of all trust assets, and dedicated office space in Jackson Hole.
