United States: On Being A Private Trust Company Attorney, An Interview With Richard Johnson

Last Updated: June 20 2013
Article by Mark Greene

Richard Johnson is a private trust company attorney in Nashville, Tennessee. For over 25 years, large family-owned and closely held businesses, high net worth individuals, family offices, and tax-exempt organizations, have sought out Richard to provide practical tax, business, and estate and trust planning solutions. Richard formed the first private trust company under Tennessee law and has been responsible for forming all other private trust companies in Tennessee. He drafted new legislation updating Tennessee's private trust company law, which greatly expanded the definition of a private trust company to make Tennessee's private trust company statutes more attractive than those in other states . The updated law now provides the family the option to allow the family's business to own the private trust company as a wholly owned subsidiary.

Richard, what is a "private trust company" or PTC?

A private trust company is a Tennessee chartered trust company established to serve as fiduciary for the family members' trusts. The PTC must be owned by family members or by a company that is owned by family members. The PTC can be a corporation or a limited liability company. The intent is that, following its establishment, the PTC will serve as Trustee of all the trusts established for the family members and can provide wealth management services and other concierge services as determined by the family.

Here are the basics of a private trust company:

  • Owned by (or a combination with) family members, family trusts or family's business
  • Formed as an LLC or corporation
  • Holds and administers assets for the benefit of a family
    *Family includes up to nine (9) generations, with spouses and step-children
  • Serves as fiduciary and wealth management advisor to the family
  • Employs managers and advisors and usually has a board of directors and committees that govern investments and distributions

What are the advantages of forming a Private Trust Company?

  • Customized Services
    The PTC can customize its services for the Family's needs compared to commercial trust companies.
  • Liability
    Use of PTC eliminates fiduciary liability risk for current individuals serving directly as Trustees of the family trusts.
  • Continuity of Administration
    A PTC can provide continuity of trusteeship compared to an individual trustee, who may become incapacitated or die.
    In addition, the PTC can also provide a mechanism to provide structure in administering several different trusts for the family members.
  • Informed Distribution Decisions
    The Distribution Committee of the PTC will be directly responsible for addressing any difficult distribution decisions which could otherwise create family conflict.
  • Flexibility in Investing
    A PTC has the flexibility to invest in various types of investments which a commercial trust company may prefer not to hold, such as hedge funds or real estate. In addition, this flexibility potentially offers relief from the requirements of investment diversification, thereby permitting concentrate investments in specific industries and/or companies (e.g., a closely-held family business). Moreover, since the PTC is technically a bank, it is exempt from having to registered as an Investment Advisor with the SEC.
  • Stability of Staff
    Unlike commercial trust companies, in which there may be turnover of staff, the staff of a PTC will likely be retained longer, thereby fostering a stronger ongoing relationship between staff members and the beneficiaries of the trust.
  • Efficient Organization
    A PTC provides a structure for the administration of trusts through a corporate organization, and thus provides for a more efficient means of providing oversight of several trusts.
  • Family Business Succession Planning
    Family business interests may be held in trusts of which the PTC, a wholly owned subsidiary of the family business, votes the family business stock which can promote maintaining the business in the family.
  • Tennessee Department of Financial Institutions
    The Tennessee Department of Financial Institutions are knowledgeable of PTC's and support more PTC's being established in Tennessee.

Are there any disadvantages to forming a Private Trust Company?

  • Independent Persons Making Distribution Decisions
    Independent individuals must make distribution decisions. Generally, independent individuals are those persons other than employees of the family or family business and certain family members.
  • Confidentiality
    The PTC Board may receive confidential information related to the beneficiaries.
  • Startup Costs
    Costs (monetary and time) include formation costs, obtaining approval from Tennessee Department of Financial Institutions (although the time frame is relatively short), and transfer of trusteeships to the PTC.

What is your experience in assisting clients form private trust

companies?

I have formed all of the private trust companies in the state and drafted the legislation that expanded the scope of the use and availability of the PTC.

Why do you enjoy this area of your law practice?

Working with families and family offices is gratifying because I am helping people preserve their life's work and their most important assets. I also enjoy the challenge of navigating the intersection of family dynamics, state trust law, federal income tax law, estate and gift tax law, and generation-skipping tax laws, banking law, corporate and limited liability company law.

Who should contact you about forming a private trust company?

Families with significant assets and trusts who are seeking to:

  • Tailor their trust services to specific family needs
  • Provide continuity of Trusteeship
  • Have the option to use the family office or the PTC to manage the trusts' investments
  • Maintain the family business for multiple generations where applicable

For further information visit Waller

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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