What Is Trust Company?

A trust company is a legal entity that acts as a fiduciary, agent, or trustee on behalf of a person or business for the purpose of administration, management and the eventual transfer of assets to a beneficial party. The trust company acts as a custodian for trusts, estates, custodial arrangements, asset management, stock transfer, beneficial ownership registration and other related arrangements.

How Trust Company Works

A trust company does not own the assets its customers assign to its management, but it may assume some legal obligation to take care of assets on behalf of other parties. A trust company or trust department is usually a division or an associated company of a commercial bank. Trusts and similar arrangements managed for eventual transfer are managed for profit, which it may take out of the assets annually or upon transfer to the beneficial third party.

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. These trusts generally charge their fees based on a percentage of assets, ranging from 0.25 percent to 2.0 percent, depending on the size of the trust.

Special Considerations

Trust companies offer a variety of services, but the most common is wealth management in the mode of a fiduciary or agent. Trust companies offer asset-management services, such as bill pay, check writing, and other features. Trust companies also offer brokerage services with a wide array of investments available to their clients. Depending on the level of service needed, some companies can build financial plans for their clients for additional fees.

[Important: Trust companies also offer a variety of estate-oriented services, such as guardianship, estate settlement, and non-financial asset management.]

A trust company is hired to act as a fiduciary for the client. Therefore, the trust company makes all the investment decisions and act in the best interest of its client. This is helpful for individuals who are not competent enough to make their own financial decisions. Clients who also don’t want or care to manage their day-to-day finances can also benefit from using a trust company.

Trust companies are also used in estate-planning matters. A trust company can be left as a successor trustee for a trust when there are no financially responsible family members. Upon the death of the grantor, the trust company will become the new trustee and manage the assets according to the terms of the trust.

Trust companies are also good alternatives for preventing future family squabbles when dealing with estates. If dividing up the assets of an estate will cause family turmoil, a trust company can act as a neutral third party.

Key Takeaways

  • A trust company is a legal entity that acts as a fiduciary, agent, or trustee on behalf of a person or business for the purpose of administration, management and the eventual transfer of assets to a beneficial party.
  • A trust company acts as a custodian for trusts, estates, custodial arrangements, asset management, stock transfer, beneficial ownership registration and other related arrangements.
  • Trusts are managed for profit, which it may take out of the assets annually or upon transfer to the beneficial third party.