A trust company is a legal entity, usually a corporation, that can act as an agent or trustee on behalf of a trust. They may also offer other services such as estate planning, investment management, and trust administration. Trust companies can be either stand-alone legal entities or divisions of commercial banks. Trust companies are required by law to be members of the Federal Deposit Insurance Corporation (FDIC). The FDIC insures banks in case they ever go out of business. Trust companies typically work with the executor and beneficiaries to help carry out their various responsibilities and include: After someone dies, the executor of their estate will need to gather and distribute that person's assets according to the instructions in their will. A trust company can help with this process by ensuring that everything is done quickly and orderly. A trust company will keep track of all the income and expenses associated with a particular trust. This can help beneficiaries make more informed decisions about their inheritances. A trust company can hold and manage assets on behalf of a trust. This can help reduce the administrative hassle of managing lots of different accounts. When a company sets up a trust for the benefit of its employees or shareholders, it can choose to use a trust company rather than establish its own in-house program. This is one way a trust company can be used as a financial advisor. A stand-alone trust company is a company that specializes in providing trust services. It may be owned by a bank, but it is not affiliated with any particular financial institution A commercial bank trust company is a division of a commercial bank that provides trust services. These companies are insured by the FDIC, which means that your assets are protected in case the company goes out of business. A trust division of an investment bank is a division of an investment bank that provides trust services. Investment banks are not FDIC-insured, so your assets may not be protected if the company goes out of business. You may want to consider using a trust company if: This can be a hassle to keep track of, and it may be difficult to get a complete picture of your financial situation. A trust company can help you consolidate all your accounts into one place. This can be a lot of work, and you may not have the time or knowledge to do it yourself. A trust company can help you make smart investment decisions and ensure that your estate is handled properly after you die. Trust companies can help you set up trusts that minimize how much tax your beneficiaries have to pay when they receive distributions from the trust. A person acting as a fiduciary must always act in the best interest of their clients and cannot put their own personal interests ahead of those of their clients. A trust company can help you create a will, set up trusts, and make other arrangements that will help ensure your estate is handled smoothly after your death. Using a trust company as part of your estate planning process can help avoid some common problems. When more than one person is involved in managing financial affairs, it can be difficult to ensure that everyone's interests are represented fairly. A trust company can act as a neutral third-party administrator for your estate. Trust companies don't have to report the details of your accounts to the IRS. This can provide some privacy for your heirs. By using a trust company, you can avoid having to go through the probate process after you die. This can save your beneficiaries a lot of time and hassle. If your assets are held in a trust company account, you don't have to worry about having confidential information stolen - it only needs to be revealed to the people who run your trust. This can help keep your money safe from thieves. Trust companies can help you plan for taxes in advance, so your executor doesn't have to scramble at the last minute to pay them. Depending on what you want to accomplish with your trust, it may be beneficial to hire a professional who is legally able to make decisions on your behalf. For example, if you have a very young child and don't want them to have access to the money in their trust until they're older, it may be helpful to give that responsibility to a professional.How Do Trust Companies Work?
Distributing assets to beneficiaries according to the terms set out in the will or trust agreement.
Providing accounting services for all trusts.
Acting as a custodian for assets held in trust.
Providing trust-related services to businesses and other organizations in addition to individuals.
Types of Trust Companies
Stand-Alone Trust Companies
Commercial Bank Trust Companies
Trust Divisions of Investment Banks
How Do You Know If You Need a Trust Company?
For example, a trustee who is also the beneficiary of a trust could not use the trust assets to benefit themselves.
Benefits of Using a Trust Company
It can minimize disputes.
It can offer greater privacy.
It can speed up the distribution of assets.
It can help reduce the risk of identity theft.
It can be useful for tax planning.
It may be useful as a fiduciary role.
Trust Company FAQs
Trust companies are governed by state and federal laws. They're usually required to be licensed and registered with the states in which they do business.
Trust companies generally have $250,000 or more in liability coverage like other financial institutions.
Services provided by a trust company can vary. Some services include estate planning and administration (for example, the creation of wills or trusts), financial management (helping you underwrite or sell stock options), insurance policies/benefits management, and investor services.
A trust company is a specialized financial institution that provides fiduciary services. A bank is a more general term that can refer to either a commercial bank that deals in loans and deposits or a savings and loan association specializing in home mortgages.
Trust Companies manage assets on behalf of their clients by investing the funds in different types of investments, such as stocks, bonds, and real estate. Trust Companies also help their clients to plan for their estates by setting up trusts and other legal arrangements.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.