A trust company is a legal entity that can serve as an agent or trustee on behalf of a trust. They can be either stand-alone entities or divisions of commercial banks. If you’re planning to use trusts as part of your estate planning process, a trust company can likely help by serving as trustee. They can also play a role in other aspects of your financial plan. Consider working with a financial advisor as you do estate planning.
What Is a Trust Company?
A trust company is an entity, often a division of a commercial bank, that can serve as an agent or trustee to either a personal or business trust. Rather than choosing an individual to act as trustee, a trust company can fill the same role. The company will manage the trust and oversee the eventual transfer of assets to beneficiaries.
Despite the name, trust companies aren’t limited to trust management. They can manage estates and custodial arrangements in addition to trusts, as well as wealth management, asset management, brokerage and financial planning services. As fiduciaries, they have a legal mandate to act in the best interest of their clients at all times.
Breaking Down What Trust Companies Do
Trust companies can handle the day-to-day operations of managing trusts. Trust companies can act as trustees for all kinds of trusts, from charitable remainder trusts to testamentary trusts. They can also be named successor trustees for living trusts.
A trust company’s responsibilities don’t end there, though, as they can be quite versatile in the services they offer. Trust companies can handle estate settlement and oversee the process of distributing assets to beneficiaries. Additionally, trust companies can perform traditional wealth management and asset management services in their capacity as trustees or agents. They also can handle stock transfers and beneficial ownership registration. Since many trust companies exist as part of commercial banks or other financial institutions, they’re better equipped to handle the wealth management aspects of trusts and estates.
Most trust companies can also perform brokerage services, allowing them to act as one-stop shops. Their fiduciary duty also means they’re obliged to always act in the best interest of the trust.
Trust Fees
While there are no set rules for determining how much trustees can charge for their time, there are some commonly accepted baselines. For example, it’s not unusual for trustees to charge a minimum of 1% of assets, sometimes referred to as a corpus fee, when dealing with larger trusts that have substantial assets. So for a trust with $5 million in assets, the fee would work out to $50,000 a year. These corpus fees can vary, by state and complexity of the trust, but percentages of 0.25% to 2% of assets are common.
With smaller trusts that use a flat fee model, the numbers can look very different. For example, say you have a trust that has $200,000 in assets. Using the 1% rule as a guideline, your trustee would be able to collect $2,000 a year for their services. But if the trust doesn’t require much hands-on management, it might make more sense for you to offer them a flat fee of $1,000 instead.
Other possible costs include fees based on a trust’s income, brokerage commissions, annual expense ratios and trading fees.
Trust Company vs. Financial Advisor
The difference between trust companies and financial advisory firms is partially concrete and partially conceptual. Concretely, trust companies often provide a broader range of services than a financial advisory firm. In addition to the traditional asset management and financial planning services, trust companies can also help you manage the daily operations and maintenance of trusts and estates. Financial advisory firms, meanwhile, can offer more services that relate specifically to financial planning. This could include education planning, charitable giving planning, insurance planning and more.
Conceptually, a trust company’s first priority is the management of the trust. By comparison, a financial advisor’s priority is achieving the best return for your portfolio. If you’re out to grow your wealth or engage in in-depth financial planning, you may be best suited for a financial advisor. If you’re looking to set up future generations and maintain the wealth you already have, a trust company may be a good fit.
Why Use a Trust Company?
One of the biggest selling points of a trust company is the wide range of services they offer at once. By using a trust company, you can leave behind having to coordinate between your financial planner, your broker and your tax consultant. With all of that taking place under one roof, there’s plenty of potential for greater efficiency. Plus, trust companies are fiduciaries, so you don’t need to worry about anyone taking advantage of you.
Another positive that comes with trust companies is how many of them are out there. Just about every major bank has a trust department, so you won’t have to worry about driving several hours to get there.
Finally, trust companies can also serve as alternatives for preventing family disputes that may arise with one family member acting as sole trustee. If there’s any concern that granting one family member trustee power could lead to arguments or drama, letting a trust company take the reins could be an easy fix.
Bottom Line
Trust companies allow you to handle all your financial dealings under one roof. Through trust administration, wealth management and even tax preparation services, you can keep all your financial affairs in one spot. This can free up your mind to focus on whatever you like. If you’re considering a trust as a way to preserve your wealth or set up future generations for success, a trust company could be just what you’re looking for.
Tips for Managing Your Finances
- Some trust companies offer financial planning services, but you might be able to get more in-depth services from a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Creating a trust for your estate plan is a good way to avoid the probate process. Here’s a guide to the different types of trusts you can create.
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