“One of the key challenges in forming an irrevocable trust is the selection of the trustee.  This can become a particularly difficult challenge because it is quite common for Ultra-High Net Worth (UHNW) Families to want to maintain some form of a voice in the management of trust assets inside of irrevocable trusts.  Maintaining a voice in the management of the trust assets inside of irrevocable trusts can often result in the reluctance to name an individual, a bank trust company, or a public trust company as trustee.

A private trust company can be a possible solution.  Providing a forum for families to participate in the investment management of trust assets inside of irrevocable trusts is one of the primary benefits of a private trust company.”

Jim Weller provides members with commentary that examines an important question planners may encounter: choosing between a licensed private trust company and an unlicensed private trust company.

James P. Weller, JD, LL.M is Chief Fiduciary Officer of Greenway Family Office Services LLC (Greenway) in Houston.  Greenway provides an array of administrative and financial reporting services to private trust companies, individual trustees, and family entities.  Greenway also has an office in Las Vegas where it assists Nevada Family Trust Companies in establishing the necessary situs within Nevada.  Jim has written estate, trust, and tax planning articles for several professional publications including the ACTEC Journal, Leimberg Information Services, Inc., the Journal of Practical Estate Planning, and the Journal of Financial Planning.  He has also presented several webinars sponsored by Leimberg Information Services, Inc. on Private Trust Companies, Qualified Opportunity Funds, The Corporate Transparency Act, and The Jock Tax.  His book titled Tax-Smart Wealth Planning was published in 2006, and his two e-books titled A Practical Guide to Private Trust Companies and A Guide to NIL in the Topsy-Turvy World of College Sports were published in 2025.  Jim has over 30 years of experience in the trust, estate, and tax planning fields including the management of trust departments in Tennessee and Arizona, and he is a member of the State Bar of Michigan.

Here is his commentary:

EXECUTIVE SUMMARY:

One of the key challenges in forming an irrevocable trust is the selection of the trustee.  This can become a particularly difficult challenge because it is quite common for Ultra-High Net Worth (UHNW) Families to want to maintain some form of a voice in the management of trust assets inside of irrevocable trusts.  Maintaining a voice in the management of the trust assets inside of irrevocable trusts can often result in the reluctance to name an individual, a bank trust company, or a public trust company as trustee.

A private trust company can be a possible solution.  Providing a forum for families to participate in the investment management of trust assets inside of irrevocable trusts is one of the primary benefits of a private trust company.

FACTS:

Background:

A private trust company is an entity formed under state law to serve as a fiduciary for a single family, and it is prohibited from providing fiduciary services to the general public.  However, some states in their private trust acts permit private trust companies to serve family clients who are broadly defined beyond just family members.  As a result, these acts expand the scope of who can be served by a private trust company.  It should be noted that in certain states such as Nevada, New Hampshire, Florida, and Wyoming a private trust company is referred to as a family trust company.

Family Members are defined under applicable state law by the degree of kinship to a Designated Relative.  A Designated Relative is typically a patriarch or matriarch of a family.  A Designated Relative can be a deceased person.  Florida and Tennessee are states that under certain circumstances allow more than one designated relative.[i]

A private trust company is generally formed under state law as a corporation or a limited liability company.  However, today’s evolving legislative environment provides other ownership options such as a special purpose trust and a statutory foundation.  A special purpose trust is a trust created for a purpose rather than for beneficiaries.  Many states permit special purpose trusts.  On the other hand, a statutory foundation is commonly used by wealthy families in civil law jurisdictions to hold and protect family wealth.  Wyoming and New Hampshire are two favorable family trust company states that authorize statutory foundations.[ii]

There are three types of private trust companies. First, most states require that a private company apply for and receive a trust license or charter from the state of its formation. As a result, licensed private trust companies are subject to regulation by the state of formation.

Second, Florida, Nevada, Ohio, and Wyoming are examples of states that authorize unlicensed private trust companies.[iii]  Unlicensed private trust companies are not subject to state regulation.

Finally, Tennessee, New Hampshire, and Texas are examples of states that permit exempt trust companies.  Although an exempt trust company is essentially licensed and subject to state regulation, it can apply for exemption from certain regulations under applicable state law. Interestingly, in Tennessee, a private trust company can request in writing to be exempt from any provision of the Banking Act or the regulations thereof.  One could argue that reference to exemption from any provision of the Banking Act or the regulations thereof means that Tennessee authorizes unregulated private trust companies.

Benefits of a Private Trust Company:

The following are some of the key reasons why UHNW Families form private trust companies:

1. Family Participation in the Management of Trust Assets.  As mentioned above, one of the main benefits of a private company is that it affords the family the opportunity to have a say in the management of wealth inside of irrevocable trusts.  Under the governance structure of a private trust company, the Investment Committee is responsible for the prudent management of trust assets.  By appointing family members on the Investment Committee, the family is able to participate in the management of the trust assets.
2. Provide Stability for Trustee Designations.  In designating a bank or an individual as trustee, families must be mindful that banks can merge and undergo significant change while individuals can die or become incapacitated. In contrast, a private trust company is a stable option that can serve as trustee as long as the family needs it.
3. Less Regulatory Oversight.  As noted earlier, a licensed private trust company is regulated by the state in which it is formed.  However, because there is no public interest for state regulators to protect, a licensed private trust company has less regulatory oversight than a bank trust department and a public trust company.  Once again, an unlicensed private trust is virtually free of regulatory oversight.
4. Comfort Level with Holding Heavily Concentrated Assets.  The wealth of UHNW Families often consists of heavily concentrated assets. Bank trust departments, public trust companies, and individuals tend to struggle with holding heavily concentrated assets which can lead to a propensity to reduce the concentration. Private trust companies are typically more in touch with a UHNW Family’s special relationship with heavily concentrated assets and less adverse to risk to holding heavily concentrated assets.
5. Flexible Trustee Fees.  Although trustee fees are the primary source of revenue to cover operational costs of a private trust company, profitability is not the top goal of a private trust company.  As a result, not putting profitability first can lead to more flexible trustee fees.
6. Providing Proper Stewardship of Family Wealth.  A private trust company can serve as a training ground on the proper stewardship of family wealth for current and future generations of the family.  One means of accomplishing this is to provide opportunities for family members to serve on the Board of Directors and the Investment Committee.  These opportunities can be enhanced by regularly rotating family members on the Board of Directors and the Investment Committee.  It also is a prudent practice to invite family members annually to a Board of Directors Meeting to observe firsthand how a private trust company is operated and governed.
7. Domestication Vehicle for a Foreign Trust.  If a family has a foreign trust that owns real estate, family members must be cognizant of IRC §643(i)(1).  Under IRC §643(i)(1), the rent-free use of the property in a foreign trust by a U.S. Grantor, a U.S. Beneficiary, or a U.S. Related Person will be treated for U.S. income tax purposes as a distribution of property from the trust to the extent of the fair market value of the use of the property.  However, in the U.S., case law supports the rent-free use of property in a U.S. trust by a beneficiary as having no income tax consequences.[iv]  Consequently, a private trust company provides an option to domesticate a foreign trust to the U.S. and avoid the application of IRC §643(i)(1).
8. Leverage Favorable State Private Trust Company, Trust, and Tax Laws.  Families have the opportunity to take advantage of favorable state private trust company, trust, and income tax laws.  In that regard, it is this author’s opinion that the most favorable states are Florida, Nevada, New Hampshire, South Dakota, Tennessee, and Wyoming.
9. Avoidance of SEC Registration. If a person or firm qualifies as an investment adviser, Form ADV must be filed with the SEC and kept current.  Form ADV is an application for registration with the SEC as an investment adviser.  As an investment adviser, the following is also required: (a) compliance with the brochure rule which requires most advisers to provide clients and prospective clients with information about the adviser’s business practices and educational and business backgrounds; (b) maintenance of accurate and current books and records as specified by the SEC; and (3) subjection to inspection and examination by the SEC staff.

Under Section 202(a)(11) of the Investment Advisers Act of 1940, an investment adviser is any natural person or firm who for compensation engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who for compensation, and as part of regular business, issues or promulgates analyses or reports concerning securities.  Compensation is broadly defined to include the receipt of any economic benefit whether in the form of an advisory fee, some other fee relating to the total services rendered, a commission, or some combination thereof. 

A private trust company typically receives trustee fees for providing an array of fiduciary services to family trusts, including investment management.  Based on the above factors, it appears that the management of family assets by a private trust company comes under the umbrella of an investment adviser.

Section 202(a)(11) of the Investment Advisers Act of 1940 excludes banks from the definition of an investment adviser. Under Section 202(a)(2)(C) of the Investment Advisers Act of 1940, the definition of a bank includes a trust company supervised and examined by state or federal authorities having supervision over banks or savings and loans.  Because a licensed private trust company is subject to regulation and examination by state banking authorities, it falls under the definition of a bank and is exempt from SEC registration.

Unfortunately, because an unlicensed private trust company is not regulated, it does not fall within the definition of a bank, and consequently does not qualify for the bank exemption.  However, there is a potential outlet for an unlicensed private trust company to avoid SEC registration.  That is, if an unlicensed private trust company meets the requirements of the Family Office Exclusion, it can avoid SEC registration.

On June 22, 2011, the SEC adopted rule 202(a)(11)(G)-1 that defines a family office for purposes of exclusion from SEC registration.  A family office under this rule includes any company that (a) provides investment advice about securities only to family clients which is broadly defined to include not only family members, but some non-family members such as key employees, non-profit organizations, charitable foundations, and charitable trusts; (b) is wholly owned by family clients and is exclusively controlled directly or indirectly by family members and/or family entities; and (3) does not hold itself out to the public as an investment adviser.

Depending on how an unlicensed private trust company is structured and operated, qualifying for the family office exclusion should not be an unattainable hurdle.  Once an unlicensed private trust company is deemed to have qualified for the family office exclusion, it is a prudent practice to have the Board of Directors review on an annual basis the continued compliance with the family office exclusion.

Potential Drawbacks of a Licensed Private Trust Company

In considering a licensed private trust company, it is important that UHNW Families become aware of the potential drawbacks.  These drawbacks can include the following:

1. Required Minimum Capital.  States require that minimum capital be maintained for a licensed private trust company.  New Hampshire and South Dakota are states with a relatively low minimum capital requirement of $200,000.[v]  Texas tops the list with a minimum capital requirement of $2,000,000, but a trust company may apply to the Banking Commissioner to reduce the amount of the minimum capital in a manner consistent with protecting the safety and soundness of a trust company.[vi]

Florida distinguishes its capital requirements depending on the number of Designated Relatives. In that regard, Florida permits a licensed family trust company to have up to two Designated Relatives.[vii]  Consequently, in Florida, a licensed family trust company with one Designated Relative has a minimum capital requirement of $250,000 while a family trust company with two Designated Relatives has a minimum capital requirement of $350,000.[viii]

Some states place restrictions on the initial minimum capital.  For instance, Nevada and Wyoming require that the initial minimum capital be paid in cash.[ix]  Florida allows the initial capital to be composed of cash, U.S. Treasury Obligations, or any combination thereof.[x]

States can also restrict how capital is invested on an ongoing basis. For example, a trust company in Texas must invest and maintain an amount equal to at least 50% of its capital in investment securities that are readily marketable and can be converted to cash within four business days unless the Banking Commissioner approves in writing the maintenance of a lower amount.[xi]

2. Threat of Additional Regulatory Oversight.  As previously pointed out, licensed private trust companies presently enjoy reduced regulatory oversight by the states of formation.  However, this can change quickly if a private trust company has unsatisfactory examinations or there are complaints and concerns of family members that are brought to the attention of the Banking Commissioner.

Requirement of a State Resident as a Member of the Board of Directors.  The requirement that a resident of the state of formation be on the board of directors of a private trust company varies depending on the state.  For instance, New Hampshire does not require that a resident of the state be a director of a family trust company.[xii]  The Nevada Family Trust Company Act is silent on this issue.  However, Florida requires that a least one of the three board members be a resident of Florida.[xiii]

 

UHNW Families generally surround themselves with trusted advisors and individuals who they have worked with for years and know the makeup of the families and their values.  If none of these trusted advisors and individuals live in a state that requires a resident director, it could be a big hurdle for some UHNW Families to overcome to bring an unknown person into the governance of a private trust company.

3. Requirement for a Fidelity Bond and Liability Insurance.  A fidelity bond is a type of insurance that protects a business from losses caused by fraudulent acts by its employees such as theft, embezzlement, and forgery.  Liability insurance can generally take the form of Directors and Officers Liability Insurance and Errors and Omissions Insurance.  Directors and Officers Liability Insurance is designed to protect the personal assets of directors and officers from legal claims arising from decisions and actions made in their official capacity.  An Errors and Omissions Insurance Policy protects businesses and individuals against claims made by clients for negligent acts, errors, and omissions committed during business activities that result in a loss.

As might be expected, states vary on the requirements for fidelity bonds and liability insurance.  Here are some examples of what states require: (a) Directors and managers of a licensed family trust company in Nevada shall obtain a fidelity bond in such amounts as they shall determine[xiv]; (b) A family trust company in New Hampshire shall maintain a fidelity bond and an errors and omissions policy. In regard to the amount of insurance coverage, the Banking Commissioner shall consider the family trust company’s safety and soundness and shall give primary consideration to the liability coverage which provides the primary protections for a family trust company’s family clients;[xv]; (c) A private trust company in South Dakota must have a fidelity bond of not less than $1,000,000 and a directors and officer liability policy of at least $1,000,000;[xvi] and (d) Florida requires a licensed family trust company to have a fidelity bond of at least $1,000,000 and an errors and omissions policy of at least $1,000,000.[xvii] In addition, Florida permits a licensed family trust company to increase its capital to $1,000,000 in lieu of a fidelity bond.[xviii]

4. Annual Reporting to the State.  It is important to know the requirements of the various states regarding annual reporting.  For example, a licensed private trust company in South Dakota has to file an annual report of the trust company at a time determined by the Director of Banking.[xix]  In Wyoming, the Banking Commissioner has discretion to call for special reports verified under oath from any chartered family trust company at any time as necessary to inform the Commissioner of the condition of the chartered family trust company.[xx]
5. Trust License Fees.  To obtain a trust license, a private company must file an application.  License application fees vary state to state. For instance, the application fees are $1,000 in Tennessee, $3,000 in Nevada, and $10,000 in Florida.[xxi]  States also typically require that a trust license be renewed annually.  The annual license renewal fee in Nevada and Florida is $1,500.[xxii]
6. Trust License Application Process.  The application process typically involves providing personal information.  This can include biographical information, a copy of personal financial statements, and fingerprinting for background checks of directors, principal owners, and officers.  Some UHNW Families and their close advisors might find providing such personal information to be a deterrent to becoming a licensed private trust company.

Potential Drawbacks of an Unlicensed Private Trust Company

One of the advantages of an unlicensed private trust company is that it can be formed much quicker and simpler than a licensed private trust company because of the absence of the trust license application process.  Some of the key steps in forming an unlicensed private trust company generally include: (1) forming the entity under state law which typically can be done on-line; (2) obtaining state and local business licenses which also can be done on-line; and (3) holding an organizational meeting to elect directors and officers, designate a registered agent, approve third-party service providers, and select a local bank.

 

In spite of the ability to quickly form an unlicensed private trust company, its potential drawbacks can include the following:

1. Absence of Regulatory Oversight.  Without a watchful regulatory eye to oversee the operation of an unlicensed private trust company, there is the risk of non-adherence to sound fiduciary standards and practices.  Consequently, as a prudent practice, an unlicensed private trust company should operate as if it were licensed and subject to state regulation.  Some of these prudent practices include the following: (a) establish and maintain a proper governance structure consisting of a Board of Directors, an Investment Committee, and an Amendment Committee; (b) adopt a Statement of Principles of Trust Management which is issued by the Board of Directors stating its responsibilities for the management and operation of a private trust company; (c) adopt and adhere to a Fiduciary Policy and Procedure Manual; (d) hold regular Board of Directors and internal committee meetings documented by minutes; (e) provide for Board of Directors oversight of internal committees; (f) review by the Board of Directors of 3^rd party service providers annually; and (g) prepare and approve an annual budget of the trust company.
2. Possible SEC Registration.  As indicated above, unlike a licensed private trust company, an unlicensed private trust company does not qualify for the bank exclusion from SEC Registration.  As a result, an unlicensed private trust company must find other avenues to possibly avoid SEC Registration such as the Family Office Exclusion.
3. No Minimum Capital Requirement.  On the surface, the absence of a minimum capital requirement may sound like an advantage.  However, UHNW Families must be reminded that minimum capital arguably goes to the very heart of the viability and credibility of an entity such as a private trust company.  Consequently, a prudent practice for an unlicensed private trust company is to maintain the minimum capital required of a licensed private trust company under applicable state law.
4. Possible Restrictions on Engaging in Interstate Activity.  UHNW Family Members might want a private trust company to serve as trustee or executor for them in the states where they reside.  However, state reciprocity laws can restrict such fiduciary activity by an out-of-state trust company.  Texas is an example of a state that requires reciprocity of the home state in order for an out-of-state trust company to provide fiduciary services in Texas.  In addition, Texas requires that an out-of-state trust company provide the Texas Secretary of State with a copy of its charter.[xxiii]  In other words, an out-of-state unlicensed private trust is prohibited from serving as a fiduciary for family members residing in Texas.
5. Name of Trust Company Restrictions.  In some states, there are restrictions on the ability of an unlicensed private trust company to use the word “trust” or “trust company” in its name.  In Nevada, an unlicensed family trust company cannot use the word “trust” in its name.[xxiv]  In Wyoming, an unchartered family trust company is referred to as a private family trust company.  A private family trust company cannot use the term “trust company” in its name without further specifying in its name that it is a private family trust company.[xxv]  Florida requires that use of the word “trust” be preceded by the word “family.”[xxvi]

COMMENT:

In assessing whether a private trust company will further the overall goals and objectives that UHNW Families have regarding their wealth, UHNW Families must weigh the pros and cons of a private trust company.  Once it has been decided that a private trust company is the right fit, the next step is to determine whether the private trust company should be licensed or unlicensed.

There are a couple of key considerations in deciding whether a private trust company should be licensed or unlicensed.  First, regulatory oversight that a licensed private trust company is subjected to is not a bad thing, and in many instances, it can be viewed as a important component in the proper management and operation of a private trust company.  Second, if the initial decision is to form an unlicensed private trust company, UHNW Families always have the option to convert to a licensed private trust company at a later date if the need arises.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

Jim Weller

CITE AS:

LISI Estate Planning Newsletter #3294 (May 11, 2026) at http://www.leimbergservices.com. Copyright © 2026 Leimberg Information Services, Inc. (LISI) All rights reserved. Reproduction in Any Form or Forwarding to Any Person Prohibited Without Express Permission. Our agreement with you does not allow you to use or upload content from LISI into any hardware, software, bot, or external application, including any use(s) for artificial intelligence technologies such as large language models, generative AI, machine learning or AI system. This newsletter is designed to provide accurate and authoritative information regarding the subject matter covered. It is provided with the understanding that LISI is not engaged in rendering legal, accounting, or other professional advice or services. If such advice is required, the services of a competent professional should be sought. Statements of fact or opinion are the responsibility of the authors and do not represent an opinion on the part of the officers or staff of LISI.

CITATIONS:

[i] Fla. Stat. §662.120(2) and TN Code §45-2-2001(b)(2)(B).

[ii] WY Stat. §17-30-303 and NH Rev. Stat. Chapter 564 _ F.

[iii] Fla. Stat. §662.114; NRS §669A.100; Ohio Rev. Code §11120.03(A)(1); and WY Stat. §13-5-701(d).

[iv] Sparrow v. Comm’r, 18 B.T.A. 1,16-17 (1929); Plant v. Comm’r, 30 B.T.A. 133,142-43 (1934); aff’d 76 F.2d 8 (2^nd Cir., 1935); DuPont Testamentary Trust v. Comm’r, 66 TC 761, 766-70 (1976).

[v] N.H. Rev. Stat. §383-D:6-602 and S.D. Codified Law §51A-6A-19.

[vi] Tex. Fin. Code §182.008(a) and (e).

[vii] Fla. Stat. §662.120.

[viii] Fla. Stat. §662.124(1).

[ix] NRS §669A.160 and WY Stat. §13-5-605.

[x] Fla. Stat. §662.124(2).

[xi] Tex. Fin. Code §184.101(b).

[xii] N.H. Rev. Stat. §383-D:8-801(a).

[xiii] Fla. Stat. §662.125(2).

[xiv] NRS §669A.250(1) and (2).

[xv] N.H. Rev. Stat. §383-D:6-601.

[xvi] S.D. Codified Laws §51A-6A-19.

[xvii] Fla. Stat. §662.126(2) and (4).

[xviii] Fla. Stat. §662.126(3).

[xix] S.D. Codified Laws §51A-6A-34.

[xx] WY Stat. §13-5-214.

[xxi] TN Code §45-2002(a)(1)(A); NRS §669A.190(2); and Fla. Stat. §662.121.

[xxii] NRS §669A.210 and Fla. Stat. §662.128(6).

[xxiii] Tex. Est. Code §505.003(c) and §505.004(a)(1).

[xxiv] NRS §669A.150(1)(b).

[xxv] WY Stat. §13-5-302(b).

[xxvi] Fla. Stat. §662.123(1)(a).