Understanding trusts and private trust companies (PTCs)

In the landscape of sophisticated wealth planning, both trusts and private trust companies (PTCs) serve as vital tools for long-term asset protection and succession planning. While they share common goals, such as preserving wealth across generations, their structures, governance, and practical applications differ markedly. 

A trust is where a settlor transfers assets to a trustee to hold and manage for the potential benefit of its beneficiaries. In contrast, a PTC is a bespoke corporate entity established to act as trustee for connected persons, such as family members, offering greater control, privacy, and continuity.

Leevyn Isabel, Commercial Director, and Shawn Wang, Head of Trust Services, draw on their combined expertise to examine the key differences and practical considerations when choosing between a trust and a private trust company.

What are the key differences between a trust and a PTC?

1. Legal nature:

• Trust: A trust is a fiduciary relationship rather than a separate legal entity. It is a legal arrangement in which a settlor transfers assets to a trustee, who holds and manages the trust assets for the potential benefit of beneficiaries.
• PTC: A Private Trust Company is a standalone legal entity, typically structured as a private company limited by shares or by guarantee. It is incorporated specifically to act as trustee for one or more related trusts, usually within the same family group.

2. Core purpose:

• Trust: Typically constituted for asset protection, estate planning, and intergenerational wealth transfer. It commonly involves the appointment of an independent professional trustee to ensure neutrality, compliance, and protection of beneficiaries’ interests.
• PTC: Established as a dedicated trustee vehicle for a family’s trust or group of trusts. It enables families to centralise trust management and preserve influence over how trust structures are administered.

3. Control and governance:

• Trust (traditional): The settlor gives up legal ownership and direct control of assets upon transferring them to the trustee. The trustee exercises independent discretion, which supports governance, accountability, and objectivity.
• PTC: As the PTC is the trustee, the settlor and selected family members may retain substantial control by serving as shareholders or directors of the PTC. The structure allows greater participation in decision-making, alignment with family values, and long-term continuity of vision.

What are the practical considerations when choosing between a PTC and an independent trustee?

When selecting the most appropriate trustee structure, families must evaluate a range of practical and strategic factors. The decision often depends on the desired level of control, complexity of assets, and long-term governance objectives. 

1. Family dynamics and values:

• Independent trustee: Offers objective and impartial decision-making, which can be especially valuable in navigating generational differences or potential family tensions. For example, differing opinions and attitudes on wealth distribution (equal shares vs. needs-based allocation) can be better managed through independent oversight.
• PTC: Enables the family to embed its values directly into the governance of the trust. While this fosters alignment, it also requires robust safeguards to mitigate conflicts of interest and ensure sound decision-making.

2. Balancing control and asset protection:

• Independent trustee: Operates at arm’s length from the family, reinforcing fiduciary independence and strong asset protection. However, this can also limit the family’s influence over trust affairs.
• PTC: Allows the family to retain substantial control through board representation while still adhering to fiduciary requirements of a trustee.

3. Level of family involvement:

• Independent trustee: Suitable for families seeking a more passive role in trust administration, relying on professionals to manage day-to-day operations.
• PTC: Facilitates active participation, particularly where family businesses, private investments, or legacy projects are involved. A PTC can also serve as a family governance platform, with formal roles for family members on the board or advisory committees.

4. Asset complexity:

• Independent trustee: May be cautious or constrained to handle complex, illiquid, or high-risk assets, such as operating businesses, private equity, or luxury art pieces, due to fiduciary and liability concerns.
• PTC: Offers greater flexibility in managing bespoke asset classes. Families can appoint domain experts to the board, adopt tailored investment strategies, and preserve long-term asset stewardship.

5. Cost considerations:

• Independent trustee: Generally more cost-effective for simpler trust arrangements, with predictable annual fees and an independent professional undertaking the regulatory compliance obligations.
• PTC: Requires significant setup and ongoing administrative costs, often including the establishment of a holding structure (e.g. Purpose Trust) for the PTC. Thus, it is more suitable where the scale, complexity, or control objectives justify it.

6. Trustee continuity:

• Independent trustee: May face changes in personnel or corporate restructuring, potentially disrupting long-term trust administration.
• PTC: Provides continuity of trusteeship by allowing control over board composition. Succession can be carefully planned, helping ensure stability across generations.

What are the important considerations when establishing a PTCs?

Families considering a PTC structure must address several key considerations to ensure long-term viability, compliance, and effectiveness.

1. Regulatory adherence:

• Jurisdictional compliance: PTCs are subject to the legal and regulatory frameworks of the jurisdictions in which they are established and operate in. Depending on the location, this may require the involvement of a licensed trust company to meet regulatory or licensing thresholds, particularly where the PTC is not itself regulated.
• Ongoing monitoring: Regulatory requirements evolve overtime. A system for ongoing compliance monitoring is essential to mitigate legal and reputational risks.

2. Structural complexity:

• Sophisticated architecture: PTCs often require more intricate structuring than conventional trusts. Common techniques include holding PTC shares via a purpose trust or foundation, which can enhance confidentiality and streamline succession planning.
• Tax planning: International tax implications can be significant. Early engagement with cross-border tax advisers is vital to ensure the structure is both compliant and tax-efficient, particularly in relation to ownership, distributions, and reporting.

3. Professional governance and fiduciary responsibilities:

• Director competence: If family members are appointed as directors, they must be well-equipped to discharge their fiduciary responsibilities. This includes but is not limited to familiarity with trust law, governance best practices, investment oversight, and conflict-of-interest management.
• Dual fiduciary duties: Directors must navigate the dual responsibilities inherent in a PTC structure. Their fiduciary duties as directors to the PTC as a corporate entity are not the same as the PTC’s fiduciary obligations as trustee to the trust beneficiaries. Proper training and clear policies can help manage this complexity.
• Independent oversight: Many families opt to include independent professionals on the PTC board to provide objective oversight and specialised expertise. In some jurisdictions, the inclusion of independent directors may be mandatory or strongly recommended, especially when the trust holds complex or high-value assets.

How can Ocorian help?

Trusts and Private Trust Companies each offer distinct advantages in wealth structuring. While trusts provide a reliable framework for asset protection and succession, PTCs offer enhanced control, flexibility, and privacy—especially for families with complex needs. The right choice depends on your family’s priorities, governance preferences, and the nature of your assets.

At Ocorian, we work closely with families and advisers to design, implement, and administer tailored trust and PTC solutions that align with your long-term goals. For more information, please reach out to the team.