What Is a Trust Company?
By definition, a Trust company is a separate corporate entity owned by a bank or other financial institution, law firm, or independent partnership. Its function is to manage trusts, trust funds, and estates for individuals, businesses, and other entities. A trust is an arrangement that allows a third party or trustee to hold assets or property for a beneficiary or beneficiaries.
Trust companies get their title from the fact that they act in a fiduciary capacity for their clients—as trustees. A fiduciary is an organization or an individual with the responsibility to act on behalf of others to manage their assets.
The majority of a trust company's assets are held in actual trusts, with the trust company named as the trustee. Trust companies generally employ several types of financial professionals, including financial planners, attorneys, portfolio managers, CPAs, and other tax professionals, trust officers, real estate experts, and administrative personnel.
KEY TAKEAWAYS
A trust company is a separate corporate entity owned by a bank or other financial institution, law firm, or independent partnership.
A trust is an arrangement that allows a third party or trustee to hold assets or property for a beneficiary or beneficiaries.
A trust company manages trusts, trust funds, and estates for individuals, businesses, and other entities.
Trust companies perform a wide range of services related to investment and asset management as well as safekeeping services.
What Can a Trust Company Do for Me?
Trust companies perform a wide range of services related to investment and asset management. Of course, one of the primary functions of most trust companies is managing the investment portfolios within the trusts of their clients. The investment management is done either in-house or by an affiliated third-party manager selected by or recommended to the client.
A wide variety of investments, ranging from individual securities and mutual funds to derivatives and real estate, can be employed to achieve various investment objectives, such as growth or income. Special services are also available for high-net-worth clients, including alternative investments, such as limited partnerships, natural resources, private equity, and hedge funds. Regardless of the type of management used, investment management is always customized for each client's risk tolerance and time horizon.
Financial and Trust Services
Trust companies also can provide safekeeping services within secure vaults for other types of tangible investments or valuables, such as jewelry and collectibles. Often financial planners are employed to produce comprehensive financial plans for clients, covering all aspects of a client's financial life, including investments, insurance, and retirement planning. A planner might also focus on a specific segment of a client's finances, such as investment or college planning. Comprehensive income, gift, trust, and estate tax return preparation and planning are also standard fares for many trust companies. Even escrow services and holding accounts for proceeds from 1031 exchange real estate transactions can be provided, if necessary. Section 1031 is an Internal Revenue Code (IRC) provision that allows taxes to be deferred on qualifying assets such as real estate.
Estate Planning Services
Trust companies can handle all aspects of the estate settlement process, including valuation, dispersion, and re-titling of assets, payment of debts, and expenses, estate tax return preparation, the sale of closely-held businesses, and all other necessary tasks related to passing on the property of a deceased grantor or client. Trust companies often end up working with their clients' heirs as well, providing the same array of services to the estate assets' recipients as to the donor.
Corporate Trust Services
Corporate trust services can provide assistance with both the issuance and administration of corporate debt. Corporate trusts might distribute the interest payments from the corporation to the bondholders and ensure that the issuer is adhering to the covenants of the bond agreement.
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