Unlocking Control and Flexibility with a Private Trust Company
Estate planning is a critical endeavor for affluent families seeking to safeguard their assets, minimize tax liabilities, and ensure the long-term well-being of their loved ones. In this complex landscape, private trust companies (PTCs) have emerged as a compelling solution, providing a unique blend of control, flexibility, and multi-generational involvement in the management of family wealth. By establishing a PTC, families can tailor their estate planning strategies to meet specific objectives, while taking advantage of favorable trust laws, tax advantages, and enhanced privacy and asset protections offered by certain jurisdictions. This article explores the benefits and considerations associated with PTCs, with a particular focus on Wyoming as a leading jurisdiction for establishing these family-owned trust companies.
Estate Planning
Strategic estate planning involves a delicate balance between quantitative results, such as reducing tax liability and maximizing access to capital, and qualitative outcomes, including enhanced privacy, peace of mind, and the prosperity of loved ones. Achieving these objectives often requires a customized approach, combining various planning strategies and establishing trusted fiduciary relationships.
When it comes to developing an estate plan, trusts are commonly utilized as the primary vehicle. A trust allows individuals, known as "Settlors," to formally modify the relationship with their assets. Through a written agreement, the Settlor designates a "Trustee" who will hold and manage the assets according to the Settlor's instructions, for the benefit of themselves and/or others known as "Beneficiaries." Trusts come in different forms, each designed to serve specific objectives. The ideal combination of strategies for one person may differ significantly from that of another.
Among the types of trusts, irrevocable trusts are particularly valuable for achieving various tax advantages, privacy, and wealth protection that "revocable" trusts cannot provide. There are many types of irrevocable trusts, with each variant designed to accomplish specific objectives. However, establishing any irrevocable trust entails surrendering some level of control over the trust's assets. This tradeoff emphasizes the importance of selecting a trustworthy and capable Trustee. While some families opt for individual or corporate trustees, an increasingly popular option is the use of a private trust company.
Private Trust Companies
A PTC is a family-owned trust company that combines the professionalism and continuity of a professional fiduciary with the control and involvement of the family. It serves as the core entity for managing family wealth across generations and provides trust and investment services to family members, including spouses and future generations. Notably, a PTC cannot serve the public as a trust company or investment advisor.
Families with significant holdings in concentrated assets, such as family-owned businesses, sports or entertainment franchises, real estate, or digital assets, often prefer a PTC over corporate or individual trustees. This is because PTCs offer the expertise and continuity necessary to effectively manage such assets. Unlike corporate or individual trustees who may lack expertise or long-term commitment to manage such assets, a PTC aligns with the family's interests, intimately understands the family business, and upholds the family's mission and values.
PTCs are not limited to concentrated assets but are also established by families with diverse liquid assets. By managing these assets collectively, PTCs offer the benefits of scale and flexibility by creating pooled investment vehicles to minimize costs and access asset classes or managers that may otherwise be unobtainable.
For families with digital assets, PTCs offers a valuable solution by allowing these assets to be placed in trusts and providing tax benefits while enabling the family to retain control over cryptographic keys. Wyoming, in particular, stands out as a jurisdiction with favorable regulations and crypto-friendly laws. The state's legislation recognizes digital assets as intangible property, affording them the same property rights and protections as other forms of intangible assets.
One of the primary objectives of using a PTC is to encourage family participation in managing generational wealth. By establishing an independent trustee for tax purposes while maintaining family control, PTCs provide opportunities for shared decision-making among the next generation and ensure long-term continuity. PTCs can be integrated into a family office structure, defining family involvement in wealth management and governance roles. PTCs empower family members to gain leadership experience, participate in investment decisions, and receive education on managing their generational wealth. Additionally, a foundation can be incorporated into a PTC structure to facilitate philanthropic endeavors and reinforce family values.
Figure 1: PTC Org Chart
Jurisdiction
When it comes to selecting a jurisdiction for establishing a PTC, Wyoming stands out as the clear leader. From its advantageous tax laws to its strong privacy and creditor protection, Wyoming offers a supportive legal framework that caters to the unique needs of high net worth families seeking to preserve and manage their wealth across generations.
Wyoming's statutes offer a high level of flexibility, including allowing for the creation of dynasty trusts that can span up to 1,000 years, as well as directed trusts. Furthermore, Wyoming statutes facilitate trust migration and modifications through non-judicial settlements, streamlining the administrative processes.
One of the key advantages of Wyoming is its low tax burden. The state does not impose taxes on income, capital gains, gifts, or estates, and these tax benefits can extend to non-residents who place their assets in an irrevocable non-grantor trust.
In addition to its favorable tax environment, Wyoming offers robust privacy and asset protection. Details about Wyoming PTCs and the trusts they manage, including information about grantors, beneficiaries, and trust assets, are not part of the public record. This ensures a greater level of confidentiality and shields the family’s wealth from unnecessary scrutiny.
Structure
PTCs offer a flexible structure that can be organized either as a corporation, governed by a board of directors, or as a limited liability company, managed by a board of managers. 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: PTC Governance Structure
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 three committees—investment, distribution, and amendment—the structure can be customized to align with each family's specific goals.
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, documentation, 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.
Regulated vs. Unregulated
Wyoming stands out as one of the few states that permit the establishment of both regulated and unregulated PTCs. Regulated or "chartered family” trust companies are entities that have obtained a charter from the Wyoming Division of Banking. They are subject to periodic examinations conducted by the Division of Banking and a minimum capital requirement of $500,000. Conversely, 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 to operate as an unregulated PTC, a regulated version may be preferred to provide an additional layer of protection against possible challenges to trust situs and to ensure adherence to best practices through ongoing reviews of policies and procedures by regulators and auditors. Moreover, Wyoming law allows a regulated PTC to serve as trustee for up to two unrelated families. Regardless of the regulatory structure, 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, among other important considerations.
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.
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About the Authors
With over three decades of experience in financial services, Joel Revill serves as Chief Executive Officer of Two Ocean Trust. Prior to co-founding the firm, Joel was a Portfolio Manager at Citadel a $62 billion alternative investment manager. Joel serves as Selection Panel Chair for Wyoming's Investment Funds Committee which oversees the state's $26 billion sovereign funds. He was appointed by Governor Mark Gordon to the Wyoming Blockchain Select Committee which has created over thirty groundbreaking laws addressing financial technology and digital assets. Joel was also appointed by the Governor, Treasurer, and State Auditor to the Wyoming Stable Token Commission overseeing the first ever state-issued stable token. Joel has served on numerous boards for the firm's private trust company clients as well as non-profit organizations nationally.
Cassie Hoffman is Head of Trust Services for Two Ocean Trust a Wyoming Chartered Trust Company based in Jackson Hole providing a full range of trust and investment capabilities to ultra high net worth families and foundations. Cassie has 18 years of experience as a corporate trustee and as a director and officer of numerous private trust companies.
Matthew McClintock is a founding partner of Evergreen Legacy Planning LLP an estate planning law firm based in Evergreen, Colorado serving ultra-affluent clients worldwide. Matt is admitted to practice law in Colorado, Wyoming, Alaska, and South Dakota and is an active member of the bar associations of each of those states, as well as various related professional organizations. He is also a founder and Executive Managing Director of Bespoke Group, a multi-family office and RIA serving entrepreneurs, innovators, and crypto-affluent individuals and families. He often serves on various boards and committees within clients' private trust companies and provides ongoing strategic estate & wealth planning guidance for his clients.
About Two Ocean Trust
Two Ocean Trust was founded to serve private clients whose assets are multi-generational. We provide investment management and trust services to ultra-high net worth individuals, private family trust companies, and foundations. Based in Jackson Hole, Two Ocean Trust is uniquely positioned to provide access to Wyoming's tax advantages, modern trust laws, and enhanced privacy and asset protections.
