What Is a Trust Company? Definition, What It Does

What Is a Trust Company?

A trust company is a corporate trustee, agent or fiduciary that holds legal title for the benefit of a person or business for administration, management and ultimate transfer to a beneficiary or beneficiaries. The trust company is the custodian of trusts, estates, custodial arrangements, asset management, stock transfer, beneficial owner registration and other related arrangements.

Key Takeaways

A trust company is a legal entity that acts as either a fiduciary, agent, or trustee for a person or business, in the creation of a trust.

A trust company is therefore responsible for the administration and management of those assets, and their ultimate distribution to the ultimate beneficiaries.

A trust company is the custodian for trusts, estates, custodial accounts, asset management, stock-transfer agency and beneficial ownership registration.

Trusts earn income, which they can distribute as profits each year, or on the date of transfer to the beneficiary or beneficiaries.

How Trust Companies Work

Trusts are often spearheaded by an individual who serves as the trustee, but the operation of a trust can also be directed by a trust company. A trust company does not own the assets that its customers are willing to assign to its direction, but it might become legally obliged to supervise other people’s assets.

A trust company or trust department is typically a division or an affiliate corporation of a commercial bank.A trust and similar arrangements intended for eventual transfer of assets or income heretofore for others are managed by the trust company for profit and may take from the assets annually or upon transfer to the beneficiary or beneficiaries.

There are a wide variety of trust companies; varying in size and fees. Larger trust companies offer more and varied services, nonetheless, you often do not get the regular personal attention that you may expect from the smaller institutions. Examples of some of the larger trust companies are Northern Trust, Bessemer Trust, and U.S Trust (which now is a part of Bank of America Corporation). The fees for the trust fees usually range from 1.00-2.00% depending upon the size of the trust.

What Trust Companies Offer

Trust companies provide numerous services, from performing the business of the trust on a daily basis to serving as trustee of charitable trusts and nearly every other type of trust.

A safe harbour – the offering of wealth management services is probably the most common use of a trust company: investment management (how should your money be invested so that you grow it to the extent that you wish) and wealth preservation (so that you have the money when it is needed, rather than the government having it – we don’t want your children to be peasant farmers!) is largely this.

Trust companies offer asset-management services, such as bill pay, check writing, and other features.

Besides acting as trustees, they also serve as brokers selling a huge assortment of securities to their clients.

Some also create financial plans for clients who pay extra fees for a higher level of service.

You can, however, use a trust company to help with estate planning. The trust company can be designated as a successor trustee if you have no suitable, responsible family to succeed you. When the trust’s grantor dies, the trust company becomes the trustee, and then manages the trust’s assets according to the trust terms.

Trust companies also provide services related to estate settlement, guardianship and custody of non-financial assets.

Benefits of a Trust Company

A trust company is then hired as a fiduciary, meaning they act on behalf of you and have no ulterior motives to take advantage of you. Consequently, a trust company can then make all the investing decisions with your interests in mind. Investment management can be beneficial to the inexperienced or uninformed investor by taking advantage of the services offered by trust companies.

Clients who do not wish or do not care to supervise daily money management can also avail of using a trust company.

Trust companies can be good alternatives when it comes to inheritances and estate planning, because they can prevent future family squabbles. Bringing in a third party acting as a trustee, such as a trust company, makes sense when the mere thought of handing out possessions to family will give rise to significant family dramas.

What Does a Trust Company Do?

A trust company renders a broad range of investment, tax and estate planning services for clients.  As a distinct corporate entity that is a subsidiary of a bank or other financial institution, law firm, or separate, independent partnership, the essential business function of a trust company is to serve as a custodian for the trusts, trust funds and estates of individuals, businesses and other entities. A trust is an agreement whereby a third party or trust benefit of a benefici

Trust companies also provide portfolios of wealth management and brokerage services, and may even build custom financial plans for clients.

Who Regulates Trust Companies in the U.S.?

The safety of trust companies is guaranteed by their status as chartered and regulated institutions under the Office of the Comptroller of the Currency, an independent bureau of the Department of the Treasury. The Federal Deposit Insurance Corporation (the agency that guarantees all US bank deposits up to a certain amount) reports: ‘Trust companies that are subsidiaries of a bank holding company are also supervised by the Federal Reserve Board. A trust company that is chartered as a subsidiary of a bank is examined and supervised by its parent bank’s primary federal regulator’.

What Are the Assets of a Trust Company?

The bulk of the assets of a trust company are in actual trusts, with the trust company serving as trustee.

The Bottom Line

And because trust companies handle all of those activities for you and your beneficiaries with one set of contacts, they can be a great provider of convenience. This includes trust and investment administration services, along with broad clients services from tax preparation, tax advice and financial planning. You’ll also need to have a certain level of wealth to be able to use a trust company – literally, a net worth of around $500,000.