A private trust company is often seen as a solution for a family that wants to ease the burden of trust administration and save on costs. But the benefits can go well beyond administrative support.
A family with a private trust company should “embrace it for its full potential, which is what it can do for the family,” says John Seckman, president of Shoebox Private Trust Company. “I think the real power of a private trust company is on the human side.”
Seckman notes that while the transactional side of trust administration is important, much of that could also be done by third parties.
“When you combine that with the human side — when you allow your private trust company to actually engage with the family on the business of the family and allow them to explore these areas — that’s where the power really comes in,” Seckman says.
An engagement tool
A private trust company (PTC) is a corporate trustee set up by a family to act as trustee of their family trust or trusts. (It can also be called a family trust company or a private family trust company, depending on the state.) The PTC’s governance structure can offer opportunities to get family members involved.
“It provides more flexibility and fluidity, and more opportunities to participate,” says Gillian Nagler, head of trust services for Briar Hall. “As our rising gen starts getting older and wanting to participate, there’s space for them to do that without someone else having to step out as trustee and then update a whole bunch of paperwork to do it.”
Family participation in the PTC can benefit both the trust company and the family members.
“Many of the families I work for use the family trust company as an engagement opportunity for the rising generation — to serve on committees and the board,” says Cindy Steeb, CEO and founder of CLS Legacy Team. “The ones that I see that are more successful engage the family early on to buy into the structure and have them participate at some level.”
The board and committee structure used by many trust companies creates a lot of opportunities for family participation. The majority of the trust company board of directors will typically be family members, Steeb says.
“Under the board are committees. These are the people that make the decisions,” Steeb says. “The family gets to decide how many people serve on the committees and boards, and who the members are.”
Families can customize their committee structure to suit their needs.
For example, Steeb worked with an entrepreneurial family who created an entrepreneurial committee that included an attorney and a CPA. Family members who wanted to start businesses could get advice from the professionals on the committee, and ultimately the committee would decide whether to support the venture through the private trust company.
“I have seen beneficiaries, particularly if they have children, who love the idea of
being part of the education on how their kids learn about the wealth, the trust, the structure,” Steeb says. “I worked with one family that divided their investment committee into a public stock investment committee and a private equities investment committee. There were some people that really are into the stock market and like to engage at that level and there were others that really wanted to dive into the alternative investments.”
Steeb notes one nuance to filling committees with family members: Distribution committees must be made up of people who qualify as independent according to the IRS. Only very large families may be able to fill those committees with family members from branches of the family not connected to a particular trust. And Steeb recommends setting up one-year terms for board members to make it easy to rotate people off the board if it’s not a good fit.
“I like to say that private family trust companies really put the family solidly in control of their wealth strategy,” Steeb says.
Promoting family harmony
Setting up a PTC can bring other benefits, as well.
Seckman says one advantage of a PTC is that the trustees can help family members integrate their wealth into their lives.
“If you’re a trust beneficiary and you go downtown to the bank branch for advice on what to do with the excess distributions, they’re probably going to sell you an annuity or some other bank product,” Seckman says. “That doesn’t help you understand, ‘What is this here for? What are my long-term financial goals?’ Compare that to having a trustee that is totally loyal to you and your family — who can help you integrate this trust into your life in a way that enhances your life.”
Steeb says a PTC can also promote family harmony: Since there is one trustee, all the beneficiaries are getting the same message. When there are multiple trustees, different trustees may say different things to the beneficiaries in their trusts. Everybody hears a slightly different message — which can cause complications when family members talk with each other.
“The consistent message, starting to have some transparency and letting the beneficiaries feel like they have a voice — these are all huge steps in the harmony piece,” Steeb says.