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A trust company is a legal entity that can serve as an agent or trustee for a trust. They can be either stand-alone entities or divisions of commercial banks. If you plan to use trusts as part of your estate planning process, a trust company can likely help by serving as the trustee. They can also play a role in other aspects of your financial plan.
Do you have questions or need help with estate planning? Speak with a financial advisor who serves your area today.
What Is a Trust Company?
A trust company is an entity, often a division of a commercial bank, that can serve as an agent or trustee to either a personal or business trust.
Rather than appointing an individual as trustee, a trust company can serve the same role. The company will manage the trust and oversee the eventual transfer of assets to beneficiaries.
Despite the name, trust companies do not limit their services to trust management. They can perform a number of roles and services:
- Estate management
- Custodial arrangements
- Wealth management
- Asset management
- Brokerage and financial planning services
As fiduciaries, they must legally act in the best interest of their clients at all times.
Breaking Down What Trust Companies Do
Trust companies can handle the day-to-day operations of managing trusts. You can also name them successor trustees for living trusts.
They can act as trustees for all types of trusts, from charitable remainder trusts to testamentary trusts.
A trust company’s responsibilities don’t end there, however. They offer a variety of services, including these.
- Handling estate settlement and overseeing the process of asset distribution to beneficiaries
- Performing traditional wealth management and asset management services as trustees or agents
- Handling stock transfers and beneficial ownership registration
Many trust companies exist as part of commercial banks or other financial institutions. Because of this, they’re better equipped to handle the wealth management aspects of trusts and estates. Most trust companies can also perform brokerage services, allowing them to act as one-stop shops.
Their fiduciary duty also means they must always act in the best interest of the trust.
Fees Related to Trusts
While there are no set rules determining how much trustees can charge, there are some common baselines.
For example, it’s not unusual for trustees to charge a minimum of 1% of assets when dealing with larger trusts that have substantial assets. This is sometimes called a corpus fee. Therefore, a trust with $5 million in assets would pay $50,000 annually.
Corpus fees can vary, by state and complexity of the trust. However, percentages of 0.25% to 2% of assets are common.
With smaller trusts that use a flat fee model, the numbers can look very different. For example, say you have a trust that has $200,000 in assets. Using the 1% rule as a guideline, your trustee could collect $2,000 per year for their services. However, if the trust doesn’t require much hands-on management, it might make more sense for you to offer them a flat fee of $1,000 instead.
Other possible costs include fees based on a trust’s income, brokerage commissions, annual expense ratios and trading fees.
Trust Company vs. Financial Advisor
The difference between trust companies and financial advisory firms is partially concrete and partially conceptual.
Concretely, trust companies often provide a broader range of services than a financial advisory firm. In addition to the traditional asset management and financial planning services, trust companies also manage the daily operations and maintenance of trusts and estates.
Financial advisory firms, meanwhile, can offer more services specifically related to financial planning. This could include education planning, charitable giving planning, insurance planning and more.
Conceptually, a trust company’s first priority is the management of the trust. By comparison, a financial advisor’s priority is achieving the best return for your portfolio.
If you’re out to grow your wealth or engage in in-depth financial planning, a financial advisor may be best. If you want to set up future generations and maintain your wealth, a trust company may be a better fit.
How to Choose a Trust Company
Not all trust companies operate the same way, and the differences matter more than most people realize before they start the process.
Minimum Requirements
The first thing to check is whether you meet the minimum asset requirements.
Many trust companies, particularly those attached to large national banks, will not accept accounts below a certain threshold, often $500,000 or $1 million in investable assets. Some independent trust companies work with smaller estates, but their service offerings may be narrower.
Knowing where your estate falls before you start shopping saves time on both sides.
Fees
Fee structures vary considerably and are worth comparing directly.
The typical 1% of assets structure can add up quickly on a larger estate, but not every trust company charges the same way. Some use a tiered structure where the percentage drops as assets grow. Others charge flat fees for specific services.
Ask for a full fee schedule in writing before making any commitments. Be sure that you understand what it includes and what triggers additional charges.
Management Style
Beyond cost, consider how the company actually manages assets.
Some trust companies take a conservative, preservation-focused approach that works well for beneficiaries depending on steady distributions. Others offer more active investment management.
Neither is universally better, but the approach should match what the trust is trying to accomplish and what the beneficiaries will need.
Responsiveness
Responsiveness is harder to evaluate upfront but worth asking about directly.
A trust can span decades, and the people managing it will change over time. Ask about your primary contact, transitions during staff turnover and how the company communicates with beneficiaries.
References from existing clients, where available, can tell you more than any brochure will.
Type of Management
Finally, consider whether a bank trust department or an independent trust company is better.
Bank trust departments offer the stability of a large institution and often integrate well with existing accounts held at the same bank. Independent trust companies may offer more personalized service and greater flexibility in how they invest and administer assets.
Neither is inherently superior. Ultimately, the right answer depends on the complexity of your estate, your beneficiaries’ needs and the extent of the trustee’s ongoing involvement.
When a Trust Company Makes More Sense Than an Individual Trustee
Naming a family member or close friend as trustee is common, and in straightforward situations, this can work well. However, there are circumstances in which that responsibility creates more problems than it solves.
Long-Term Horizons
Trusts with long-term horizons are one of the clearest cases.
A trust for a young child may need to remain active for 20 or 30 years. During that time, an individual trustee may move, become ill, lose interest or simply find the ongoing burden more than they bargained for.
A trust company does not retire, relocate or have a change of heart.
Challenging Dynamics
Blended families and complex beneficiary dynamics are other situations where a professional trustee can reduce significant friction. When a trustee is also a family member with a stake in the outcome, even well-meaning decisions may be perceived as self-serving.
However, a trust company has no personal relationship with any of the beneficiaries and no financial interest beyond its fee. This gives its decisions a neutrality that an individual trustee often cannot credibly claim.
Complex Assets
Trusts holding complex assets, such as a business interest, commercial real estate or a concentrated stock position, generally benefit from professional oversight.
Managing these assets requires expertise and ongoing attention. These are things most individual trustees are not equipped to provide, given their own lives and careers.
Special Needs Beneficiaries
Beneficiaries with special needs present a similar case.
A special needs trust requires careful administration to preserve the beneficiary’s eligibility for government benefits. One misstep in the distribution process can disqualify the beneficiary from programs they depend on. That is not a responsibility most families should place on an individual without professional support.
The question is not whether a family member could technically serve as trustee. In many cases, they can.
The better question is whether that arrangement serves beneficiaries as well as a professional over the full life of the trust.
Bottom Line
Trust companies allow you to handle all your financial dealings under one roof. Through trust administration, wealth management and even tax preparation services, you can keep all your financial affairs in one spot. If you’re considering a trust as a way to preserve your wealth or set up future generations for success, a trust company could be just the solution.
Tips for Managing Your Finances
- Some trust companies offer financial planning services, but you might be able to get more in-depth services from a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Creating a trust for your estate plan is a good way to avoid the probate process. Here’s a guide to the different types of trusts you can create.
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