The key is to understand the value, power and control afforded by trusts..
Virtually all high-net-worth individuals need to put assets in trust either during life or at death for reasons that are well known namely:
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Asset protection – creditors, spouses, spendthrifts
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Asset management
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Wealth transfer
There will be a transfer of $30 trillion of assets in the next 20 years most of it to trusts that will require qualified, competent, and continuous trustee management services. Already there are a very large number of existing trusts that must be maintained currently or upon funding in the future or at death.
The problem – Who will be the trustee
There are basically 4 choices for trustee:
A friend, relative, or advisor – Using an individual presents a problem because most likely the friend or relative will not have the experience, time, or competency to administer the trust appropriately. Having a professional (lawyer or advisor) be the trustee and administer the trust generally is not within the normal scope of the services they provide, can be a conflict of interest, and becomes a distraction to more productive endeavors. Without exception the friend, relative, or advisor will die.
An institutional trust company – Using an institutional trust company has inherent disadvantages. These include a conflict of interest in that it prefers its investment management that may be subpar, trust administrators are often overworked and are positions prone to high turnover yielding impersonal and disconnected administration of the trust. Institutional trust companies are often purchased or merged with other organizations making the original choice of the trust company appointed unrecognizable to the person forming the trust..
A private trust company – the issues with a private trust company can be the same as those of the institutional trust company depending on who owns the trust company. If the RIA (Registered Investment Advisor) is the owner then it looks more like an institutional trust company however if controlled by family members it may be like the family trust company.
A family trust company – A family trust company is one that is owned and operated by the family either through the family office or outsourced to their Multi Family Office (MFO). It can be a solution for the shortcomings of the above alternatives. This often is done by use of what is referred to as a limited purpose trust company that is much less regulated than an institutional or private trust company. The downside of a family trust company is that it must apply for a state charter because a regular corporation or LLC cannot act as a trustee, that is, it must have “trust powers”. There are legal setup and ongoing accounting and administration costs but since it is owned by the family these expenses are often offset as trust fees will not need to be paid to the outside trust company.
Services of a trust company – it can act as:
-Trustee, trust advisor, trust protector
-Executor of an estate
-Agent or power of attorney
-Receiver, assignee, or agent
-Transfer agent to receive and disburse money
-Investment manager for trusts and individuals
-Many more enumerated by statute
In conclusion, creating and operating a privately-owned trust company with unlimited life that you control is increasingly becoming popular. With the change in rules, it is much more easily accomplished than in previous years..
FBO is a multi-family office focused exclusively on providing, accounting, tax, and administration of financial matters for UHNW individuals and families. It does not offer Investment Management Services.
FBO Services, Inc. 610-272-0800 email: info@fbosericesinc.com www.fboservicesinc.com
Written By:
Joseph W. Roskos, President
F/B/O Services, Inc.
2011 Renaissance Blvd. Suite 102
King of Prussia, PA 19406
610-272-0800 ext. 113
610-239-8359 (fax)
