Private Trust Companies

For very large families—those with liquid assets at least over $100 million—the private trust company (PTC) can make a great deal of sense. Such families are already likely to have significant infrastructure in terms of a family office, hence the incremental cost of setting up a PTC can be minimal. And because a PTC vastly simplifies many of the jobs the family needs to do—including complex accounting and reporting and providing ongoing trusteeship and administration of family trusts—the true net cost can easily be negative.

Until the late 1980s, when the Rockefeller family established a PTC, virtually all substantial families used the services of a commercial trust company or the trust department of a commercial bank. That option was never particularly desirable (aside from the poor quality of the investment performance, leaving sensitive family decisions to the trust committee of a corporate entity unrelated to the family was especially problematic), but with the massive consolidation of banks, leaving most American communities with no true local trust company, it has become unacceptable for any family that can afford another option.

The main advantage of the PTC is that it can provide fiduciary services directly to a family. Other forms of family office organization can support individual trustees or work with commercial trust companies, but they lack trust powers. A family that forms a PTC can thus avoid having to deal with an unaffiliated fiduciary and can, if desired, avoid ever having to burden any family member or friend with the risks of serving as an individual trustee. In addition, of course, a PTC is by its nature a far more private operation than a commercial trust company.

Until recently, PTCs were problematic for many families as the result of legal barriers in most states. For example, for centuries trust companies had been required to serve the needs of a broad public in order to obtain a charter. Only a few U.S. jurisdictions permitted the formation of a trust company designed to serve only one family, and those jurisdictions tended to be remote from population centers. These geographic and legal barriers boosted costs to a point where most PTCs formed before 1995 had to work with other families in an attempt to spread the costs of the operation. (Even the Rockefeller PTC became a multifamily office.)

Beginning in the mid-1990s, however, states began to understand the need for PTCs. By 1997, the Conference of State Bank Supervisors had promulgated the model Trust Modernization Act, which authorized PTCs on a reciprocal basis.²² As of this writing, according to John P. C. Duncan (probably the leading legal expert on PTCs), 30 states have adopted the model Act or versions of it, including Connecticut, Illinois, New Jersey, New York, Ohio, Pennsylvania, Virginia, and Texas. Notably missing are California (California is always notably missing), Florida, Maryland, and Massachusetts.²³ With so many states jumping on the bandwagon, many families will find it possible to charter a PTC in a favorable jurisdiction (for example, one with a low minimum capital requirement) but to have the main office in their own town. On the other hand, if most of the family's existing trusts are in one state, it may be prudent to establish the PTC in that state. Courts will look more favorably on a petition to replace a trustee if the new trustee is domiciled in the same state.