A trust company acts as the trustee for businesses and individuals to provide estate planning and other related financial services. Trust companies often are commercial banks that may act as stock registrars and distribute dividends for companies. They administer trusts, wills and estates for individuals and administer corporate pension plans and bonds for businesses. Other forms of trust companies include savings associations and state or federal-chartered trust companies specifically formed to service trusts. Trust companies typically are regulated by state laws.
Powers of Trusts
The regulation of trusts lies with the responsibility of the state in which the trust is registered. While the Federal Deposit Insurance Corporation insures the money placed in trusts at state-chartered banks, the federal oversight body defers to the authority of the state banking commissions’ rules and regulations. Regulations vary widely between states and are not uniformly defined in all states. At the same time, banks must apply to the FDIC to provide trust services to clients.
Primary Duties of a Trust
The main duty of a trust company is to manage money. Trust companies typically are chartered to serve as executors, managers, agents, conservators, trustees or custodians of finances for individuals and businesses. Each state defines the scope of types of activities they are allowed to participate in. General fiduciary laws regarding acceptable accounting practices, record-keeping, amount of fees allowed and investment abilities also pertain to trust companies.
Trust companies are required to have capital before they can open their doors. The amount depends on the type of trust company, the charter and state rules. Federal trust companies typically must show assets of at least $3.5 million, while smaller state-chartered trust companies may be required to have as little as $100,000. Trust companies also must be able to show that they employ properly credentialed workers to manage the funds entrusted to them, although they can outsource certain tasks in most cases.
State-chartered trust companies are restricted to offering services only to those businesses and individuals that reside in their states. Federally chartered trust companies, however, can open offices in any state as long as they adhere to the states’ regulations, such as how much the state treasurer requires as a security deposit. As such, federal and nationally chartered thrifts, banks and trust companies have an advantage over state-chartered thrifts in that they are not bound by geographic lines as to where they can do business.
Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."