Succession planning with an effective tool – a private trust company (PTC)

A thoughtful transfer of assets to the next generation is an important part of any wealthy family’s financial strategy. A Private Trust Company (PTC) is considered one of the most flexible mechanisms for succession planning. Unlike traditional trust companies that provide trust administration services to various clients, a PTC exclusively serves the interests of a family or a group of related individuals.

PTCs: what you need to know

A private trust company is a popular method for wealthy individuals to retain control of their succession planning. To this end, they create a company to act as a trustee.

This entity is governed by a board of directors that includes family members, advisors, and a professional trustee. Typically, the founder’s family representatives outnumber the other board members, allowing them to retain control of the assets. 

The essential characteristics and features of a PTC:

• Flexibility: It is possible to maintain control over asset management due to the prevalence of representatives of the founder’s family on the board of directors. Thus, the family plays an active role in the decision-making processes. This option is very relevant for families with a complex asset structure.
• Purpose of establishing PTCs: These structures are mainly created to manage assets within the family or related trusts. The PTC can act as a trustee in controlling asset distribution, investment, and tax planning.
• Succession planning: PTCs are often used precisely to facilitate the tasks of transferring wealth from one generation to the next. It leaves asset management in the hands of trustees who adhere to family values and understand its best interests.
• Increased privacy. Trust structures involving a private trust company help provide an additional level of anonymity.

Place of incorporation: PTCs are usually established in jurisdictions with favorable tax regimes and lenient requirements for such entities (the Bahamas, Nevis, the Cayman Islands, and BVI).

One advantage of a private trust company is continuity. The PTC does not die, become estranged, or lose interest in its duties, as might happen with a private individual.

How does a private trust company help preserve family assets?

By allowing assets to be transferred into trust under a PTC from generation to generation, there is an opportunity to circumvent the limitations of traditional trusts. Typically, a discretionary trust would transfer control to appointed trustees, potentially leading to diversification decisions contrary to the founder’s intentions. On the other hand, under a PTC, the founder is given unprecedented control over the trust administration. And the constraints associated with typical trustee duties are eliminated.

Control over investments, asset allocation, and other important decisions remains in the hands of people who understand and share family values and goals.

Pros of PTCs as part of succession planning:

• The ability to create a long-term asset management strategy that is implemented with the objectives of the beneficiaries in mind.
• RTAs can be tailored to meet the needs of a particular family and can be adjusted based on changes in the financial situation, tax laws, or family structure.
• Because assets are owned by the trust and not by specific individuals, there is additional protection against creditor claims, divorce proceedings, and other legal risks.

The involvement of trustees and professional advisors in a PTC helps avoid disagreements between family members and ensures a smooth succession of assets.

Competent succession planning is key to ensuring the stability, preservation of values, and long-term success of the family business or other assets. Using a PTC company for these purposes helps avoid the uncertainty and conflicts that can arise when transferring control of assets.

An example of a typical PTC structure

PTC shares are typically owned by a trust administered by a professional trustee. Direct ownership by family members is possible, but realistically speaking, it is seldom the best solution because it is difficult to maintain succession planning and confidentiality in individual ownership. 

For example, a board of directors of a private trust company may include:

• PTS specialists;
• family members;
• trusted family counselors.

A PTC can act on behalf of various trusts, provided all trusts are established for a closed group of related individuals, usually a family, spanning different branches and generations.

The typical structure of a private trust company is usually quite complex and can include several layers. It is directly connected with the purposes and preferences of the family that operates it. But there is a basic framework that has the following elements:

• Founders. The founder submitted the corresponding documents to initiate the creation of a PTC. They transfer their assets to the trusts and set the terms of their management.
• Family or advisory board. Consists of family members and professional advisors.
• Board of Directors. It usually includes family members, outside professionals, and trustees.
• Trusts. PTCs typically manage these structures. These can be educational trusts, discretionary trusts, etc.
• Beneficiaries. Individuals who benefit from trusts administered by the PTC.

Depending on the jurisdiction, a PTC may be subject to certain regulations and compliance obligations. 

Do PTCs have disadvantages?

Like any other structure, private trust companies have both their advantages and disadvantages.

Here are some potential disadvantages of PTCs:

• Initial costs of organizing the structure.
• Long-term costs to maintain and sustain operations.
• Generally, a PTC is more appropriate for owners of a fortune over 50 million USD.
• Family involvement in the management of a PTC has the potential for conflict and misunderstandings.

In addition, it is best to select a professional trustee to effectively manage all regulatory requirements and obligations from the very beginning. 

Is a private trust company suitable for your family?

Managing a private trust company requires a significant and long-term time commitment, whether family members take on most of the responsibilities themselves or hire professionals.

For example, a trust company is responsible for tasks such as:

• oversight;
• distribution of trust assets;
• making investment decisions;
• maintaining proper records.

Family members also participate equally with the hired trustees in developing investment policies. They are also responsible for hiring accountants, attorneys, investment advisors, and estate planners. Therefore, when deciding to participate in a PTC, you should understand that the process will be time-consuming. It is different from the arrangements when you can attend shareholder meetings once every six months and be done. 

What kind of families in succession planning would be suited to the creation of a PTC:

• families with assets of $50 million or more;
• who own a multi-level business;
• who wish to maintain confidentiality;
• who have international interests (assets in different jurisdictions).

Setting up a private trust company is a time-consuming process suitable mainly for families with large, diverse assets, complex business structures, and those seeking to maintain privacy and organize effective succession planning. 

If you have decided to set up a private trust company, request a consultation with our portal’s experts. We will develop the PTC’s structure and calculate all solutions to minimize the risks and maximize your benefits.