Ultra High Net Worth Individuals (UHNWIs) are increasingly setting up their own trust companies to manage and invest their wealth. There is a sense that such private trusts give families more control over their wealth, although specialists are advising any families contemplating going down this route to do so carefully.
Until now, it has been the norm for wealthy families to turn to banks or other corporate entities for advice and assistance on how to manage and protect their assets over the long term. But family offices, wealth managers and lawyers who specialize in trusts in the US say that they are seeing an increasing trend, particularly among families who have assets in excess of $100m, to set up their own private trust companies.
Those that have done this or are considering it believe that the private trust not only gives them more control over investment decisions, but guarantees a more personal service, something which is considered highly desirable in a close-knit family.
There is also the feeling that setting up a private trust company can give a greater degree of what the company is supposed to be about: “trust”. That is, trust in the organisation to do what is genuinely in the family’s best interests. Some families have complained that when a bank is used as trustees there is a conflict of interests. Whether deliberately, or simply because they know their own bank’s policies better, some bank trustees are accused of favouring funds run by their own bank. Others are said to err on the side of caution, by choosing only conservative investments, and thus not giving the family the best return on its investments.
At present, such private trust companies can be set up only in a limited number of American states. Florida took the decision this year to allow private family trusts, joining such states as Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming.
Most states that do allow private family trust companies have minimum capital requirements of $500,000. And the laws regarding regulation, taxation and asset protection of private trusts vary from state to state. Indeed, in Nevada and Wyoming such trusts are unregulated. But when a trust serves only one specific family, and is regulated by a state, it doesn’t have to register as an adviser with the Securities and Exchange Commission.
But – and this is one of the most attractive aspects of the private trust company – you don’t have to live in the state where the trust is based to set one up there. So a wealthy family living in, say, New York, which does not currently allow private trust companies, can set up a trust in Nevada and another in Wyoming to benefit from more favourable tax rules.
Of course, as with any venture of this kind setting up your own trust company is not without risk. As well as ensuring complicity with the local state laws, one of the main concerns is something which goes back to the story of Cain and Abel in the Bible: trust within the family itself. However much people may want to play the “Happy Families” game, history is littered with tales of internecine strife, of brother turning against brother. And if there is a risk of that, families may wish to provide extra safeguards for their wealth.
