Wyoming Private Family Trust Companies
Wyoming private trust companies (PTCs) provide several advantages for families seeking an alternative to conventional individual or corporate trustees. For a family with particular needs or apprehensions, a PTC can alleviate worries regarding an individual trustee’s bias, expertise and permanency. Equally, a PTC can provide improved trustee flexibility and bureaucratic expediency
The use of PTCs as wealth management vehicles rose to prominence in the 1990’s. Until recently, PTCs were considered a sensible choice only for those families so endowed with wealth and breadth to necessitate a dedicated structure akin to a small public trust company. More recently, Wyoming’s progressive legislature has significantly widened the market for PTCs. The allure of such structures now extends well beyond their initially imagined scope. Families of smaller size with more modest ledgers are increasingly attracted to PTCs as the burdens of formation and management decrease.
Simply put, a PTC is an entity in the form of an LLC or corporation that is appointed as the trustee of one or more of a family’s trusts. PTCs in Wyoming are governed by the Wyoming Chartered Trust Company Act[1] (the “Act”). Pursuant to the Act, a PTC may participate in trust company business for family members but may not provide trustee services to the general public.[2] The Act permits both regulated and self-regulated PTCs.
The primary advantages of PTCs include control, succession and stability and flexibility. As in its related trust and business statutes, Wyoming has endeavored to create a high-value, high-standard environment for wealth management and planning.
Control
For various reasons, a family may hesitate to relinquish control of their assets to a corporate or individual trustee. In a PTC, the directors and committee members may be chosen by family members or as otherwise set forth in the entity’s foundational documents. Family members may serve on certain committees within the PTC. Further, when ambiguities arise, the bespoke governance structure of a PTC can help ensure that an agreeable resolution is reached.
In the instance where a family trust owns an operating company, for example, the controlling parties may not feel comfortable granting influence to a corporate or individual trustee. In this case, a PTC allows for limited oversight of the structure.
Succession and Stability
A typical trust deed provides for an initial trustee, a successor trustee and a procedure by which further successors may be appointed. Given the potential 1,000-year lifetime of a Wyoming trust, there is an obvious obstacle to consistency in trusteeship – mortality. As the trust cycles through successor trustees, the interpretation and application of the deed may vary to the detriment of the beneficiaries and the grantor’s original wishes. A PTC, as any LLC or corporation, may exist in perpetuity, providing predictability and consistency by way of the procedures contained in its foundational documents.
The individual trustee (trusted friend or family member) is historically the most common trust arrangement. However, with the withering of the common law rule against perpetuities in many jurisdictions and an increase in demand for intergenerational wealth structures, an individual trustee may not always be ideal.
Employed properly, a PTC can provide both the tailor-made touch of an individual trustee and the endurance of a corporate trustee.
Flexibility
With limited exceptions delineated by statute and typical fiduciary constraints, a PTC may perform in wide capacity.[3] As with any LLC or Corporation, a PTC is governed by its corporate documents. There is no standard governance formula for a PTC, but the structure should be overseen by a board of directors, who in turn delegate duties to committees typically comprised of, at a minimum, an investment committee and a distribution committee. If additional or personalized committees are required, they may be appointed by resolution of the board or otherwise according to the corporate documents. Additional flexibility can remain within the committees as well -- investment committees, for example, may choose separate advisors for various asset classes within the trust.
For families with multigenerational wealth, shifting objectives or uncommon needs, PTC structures offer elasticity with respect to governance, day to day administration and long-term operations.
Self-regulated vs. Regulated
Wyoming is one of three states where families may choose between a self-regulated private trust company (in statutory terms a “Private Family Trust Company”) or a regulated private trust company (a “Chartered Family Trust Company”)[4]. Both entities are explicitly authorized by statue.
The decision between the entities enmeshes each family’s particular preferences. Within the considerations above – control, stability and flexibility– a family may further refine its approach by choosing between a regulated or self-regulated PTC.
With respect to regulated PTCs, the Wyoming Division of Banking is charged with examining the “condition and resources of the chartered family trust company, the mode of managing the company’s affairs and conducting its business, all records…and such other matters as the commissioner may prescribe. [5] Record keeping methods, including those for meeting minutes and ledgers are prescribed by statute and rule. Various additional policies are set forth in the Act. Because of these safeguards, there may be less opportunity for mismanagement in a regulated PTC in certain situations.
The minimum capital requirement for the formation of a Chartered Family Trust Company is $500,000.00[6]. As a “Supervised Trust Company,”[7] a Chartered Family Trust Company is required to pledge a surety bond to the commissioner in case of receivership or liquidation. The amount of the surety bond is determined by the commissioner on a case by case basis but must have a minimum value of at least one million dollars.[8] Further, the managers and directors of Chartered Family Trust Companies are required by statute to obtain at least one million dollars in fidelity bonds to indemnify the company against “loss because of any dishonest, fraudulent or criminal act or omission…”[9] Finally, a Chartered Family Trust Company is responsible for the payment of application fees, annual fees and the costs associated with each state examination.[10]
In comparison, the self-regulated PTC is a self-governed entity, primarily subject to conventional fiduciary rules and the duties and powers set forth in the foundation documents as supervised by the directors. There are limited startup costs including those associated with forming an LLC in the state. There are no requirements related to minimum capital, surety bonds or fidelity bonds. For peace of mind, a letter of assurance may be requested from the division of banking for a one-off fee, which verifies the company’s compliance with the Wyoming Chartered Trust Company Act, though it is not required.
The advantages of PTCs are now far-ranging; they are no longer reserved for families with multi-generational wealth measuring in the hundreds of millions. For families who seek an alternative solution to individual or corporate trustees, the past impediments to this type of entity are greatly diminished. Wyoming’s position as a vanguard of modern trust legislation means that the advantages of PTCs, whether regulated or self-regulated, are widely available.
[1] WY Stat. § 13-5-301 et seq.
[2] WY Stat. § 13-5-601(b)
[3] See WY Stat. §13-5-601, setting forth the powers and prohibitions of a family trust company.
[4] The distinction between entities is set forth in WY Stat. §13-5-301.
[5] WY Stat. §13-5-607, which subjects all chartered family trust companies to inspection by the Wyoming Division of Banking “as often as the commissioner deems necessary and at least once every three (3) years, with or without previous notice…”
[6] WY Stat. §13-5-605
[7] WY Stat. §13-5-301(a) (xv) defines a supervised trust company as “any public trust company or chartered trust company but does not include a private family trust company.”
[8] WY Stat. §13-5-413
[9] WY Stat. §13-5-414
[10] The current charter application fee is $15,000. Annual supervisory fees are $7,500 per year for a company with assets of less than three million dollars and $12,500 per year for a company with assets of more than three million dollars. The cost of each examination by the division of banking varies depending on time spent by the division.