Trust Company: Definition, What It Does, and About Its Services

What Is a Trust Company?

A trust company is a legal entity that acts as a fiduciary, agent, or trustee on behalf of a person or business. It is retained for the administration, management, and eventual transfer of assets to a beneficiary or beneficiaries.

The trust company serves as a custodian for trusts, estates, custodial arrangements, asset management, stock transfers, beneficial ownership registration, and other related arrangements.

How a Trust Company Works

Although trusts often have an individual assigned as the trustee, a trust company can also act in that capacity. For example, a trust company can be a successor trustee for a trust when there are no financially responsible family members available to take on that role.

Upon the death of the grantor—the individual who created the trust—the trust company succeeds as the new trustee and manages the assets according to the terms of the trust.

A trust company does not own the assets its customers assign to its management, but it assumes a legal obligation to take care of them on behalf of other parties.

Trusts and similar arrangements managed for eventual transfer are managed by the trust company for a fee, which it may take out annually or upon transfer to the beneficiary or beneficiaries.

Many types of trusts can use trust companies as a trustee, such as charitable trusts.

Types of Trust Companies

A trust company or trust department is often a division of a commercial bank or other financial institution, or a company associated with one. It can also be a separate corporate entity owned by a law firm or independent partnership.

There are many trust companies to choose from, ranging in size and fees. The larger trust companies provide more products and services but may lack the personal touch of smaller institutions.

Some of the larger trust companies are Northern Trust, Bessemer Trust, and U.S. Trust, which is part of Bank of America Corporation. These trust companies generally charge fees that are based on a percentage of assets, which may range from 1.00% to 2.0%, depending on the size of the trust.

What Trust Companies Offer

Trust companies offer a variety of services, including handling the daily operational tasks related to managing the trust.

Some services include:

• Wealth management services, which include investment management and wealth preservation for a client's future generations
• Asset management services, such as bill paying, check writing, and other features
• Brokerage services, with a wide array of investments available to clients
• Financial planning, for additional fees, depending on the level of service needed
• Tax planning
• Estate planning and/or estate settlement
  

Benefits of a Trust Company

• A trust company acts as a fiduciary, meaning it is legally obligated to act on your behalf and in your best interests.
• As a result, clients should feel confident in a trust company making investment and management decisions, as it is legally prohibited from taking advantage of you.
• The investment management services offered by trust companies can be helpful to those who are not experienced in, or knowledgeable about, the financial markets.
• Clients who cannot or don’t care to manage their day-to-day finances can hand that responsibility to a trust company.
• Trust companies may prevent future family squabbles over estate planning and inheritances. A trust company can act as a neutral third party that divides up and distributes the assets of an estate.

The Bottom Line

A trust company serves as trustee for a trust and manages the trust assets on behalf of its clients, according to the terms of the trust.

Trust companies provide a wide range of services, all in one place, and therefore offer a convenient way for individuals and entities to manage their financial affairs. These services include trust and investment administration and comprehensive wealth management services, such as tax preparation, tax advice, and financial planning.

You'll likely need to meet certain financial requirements, such as having a net worth of at least $500,000, to employ a trust company.