What is a Trust Company?
A trust company is a legal entity that serves as a trustee on behalf of a trust of a person or organization. It is typically tasked with the administration, management, and the eventual transfer of assets to beneficiaries. 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. Moreover, it acts as a custodian for trusts, estates, custodial arrangements, asset management, stock transfer, and beneficial ownership registration.
Despite the name, trust companies are not limited to trust management. They can manage estates and custodial arrangements in addition to trusts. It specializes on a variety of services especially on tax, inheritance, and estates, so the client’s focus and trust is focused solely on one place compared when you will go for an accounting firm for tax, then for a real estate agency for estates, where trust is placed on several ends which might be confusing and tiring.
How it Works
A trust department is usually a division or an associated company of a commercial bank. Trusts and similar arrangements managed for eventual transfer are managed for profit, which it may take out of the assets annually or upon transfer to the beneficial third party.
Trust companies can handle estate settlement and oversee the process of distributing assets to beneficiaries. It can also perform traditional wealth management and asset management services in their capacity as trustees or agents. It also offers:
- Brokerage services
- Wealth management services that includes investment management and wealth preservation
- Asset management services, such as bill pay and check writing
- Estate planning services
Types of Trust
1) Revocable Trust
Simply put, this type means that the trust may be changed or revoked anytime. The grantor of trust always has the full control over it, and can give the beneficiary or may be the own beneficiary. Because the trust can be changed anytime, this also means that it can be removed at any point in time.
2) Irrevocable Trust
Unlike the first type, this, in any way, does not allow all kinds of changes. Consequently, the trust cannot be removed unless it is to be permitted by the owner of it. If he/she unfortunately faces a severe financial situation in the future, this type of trust will allow the protection of his inheritance and unnecessary taxes on gifts from creditors.
Advantages of a Trust Company
A trust company is your agent. It is your fiduciary. It will act on behalf of you, represent you if necessary, and etc. This means they cannot and will not take advantage of you. As a result, a trust company can make all the investment decisions and act in the best interest of its client. You can leave it behind having to coordinate between your financial planner, your broker, and your tax consultant.
If you are a business owner who does not want or cannot anymore handle your business’ daily activities, then you may hire a trust company to do that work for you. Moreover, if your family is unto managing and dividing inheritances, and even real estate properties especially land, and you do not want to get into trouble before doing it successfully, then this form of business is for you.
The investment management services offered by trust companies can be helpful to those who are not experienced or knowledgeable about the financial markets. Finally, trust companies can also serve as alternatives for preventing family disputes that may arise with one family member acting as sole trustee. If dividing up the assets of an estate will cause family turmoil, a trust company can act as a neutral third party, letting a trust company take the reins could be an easy fix.
Disadvantages of a Trust Company
Though it may be promising, efficient, and will certainly remove your headache, building a trust company also has its own fair share of disadvantages. First, it is expensive and very complex. It has a lot to deal with and highly needs reliable and professional people who are trustworthy. Second, profits and losses amongst the owners are not distributed fairly. Third, if you want to reinvest in your company, additional penalty tax charges will be drawn.
A trust company heavily requires you to manage your wealth, tax, and trust. Thus being said, it opens an easy, relieving, and manageable way for you to deal with all your financial activities in one place, and all things you need to deal with from this point on will be less stressful. You might want to consider this as your business form. Your clients will be so happy to be served by you.
References:
Barone, A. (2020 April 26). Trust Company. Retrieved September 24, 2020 from: https://www.investopedia.com/terms/t/trustcompany.asp
Cussen, M.P. (2019 August 8). Understanding How Top Trust Companies Operate. Retrieved September 24, 2020 from: https://www.investopedia.com/articles/retirement/08/trust-company.asp
Kuffel, H. & CEPF. (2019 July 18). What is a Trust Company, and What Do They Do?. Retrieved September 24, 2020 from: https://smartasset.com/estate-planning/what-is-a-trust-company
Trust. (ND). Retrieved September 24, 2020: https://www.smallbusiness.wa.gov.au/business-advice/business-structure/trust
