Why Create a Private Family Trust Company?

Wealthy families are creating their own PFTCs as a result of how easy they are to create and maintain in South Dakota as well as the favorable South Dakota trust and tax laws.  Additionally, there is flexibility to charter a PFTC in South Dakota while maintaining a full service family office in another state (i.e., the resident state of the family office).  South Dakota is one of the only states allowing for this interstate capability.

The South Dakota PFTC application procedure is both simple and inexpensive ($5K application fee and approval generally within three to six months).  Additionally, the setup costs are very reasonable and the capital requirement low (i.e. $200,000).  In addition to the ease of creating and maintaining a South Dakota PFTC, there are several other compelling reasons to establish a PFTC all of which are listed below:

• PFTCs take liability away from family members named individually as trustees.
  • A PFTC can generally acquire D&O and E&O insurance for all family members who are owners and responsible for running the PFTC.
  • Consolidates and provides continuity to family trust administration.
    • PFTC has unlimited duration thus resolving possible trustee successor problems.
    • PFTC can be wholly owned by a South Dakota Dynasty Trust in perpetuity.  South Dakota has one of the best Rule Against Perpetuity statutes in the U.S., plus it was enacted prior to 1986 i.e. the enactment date of the Generation Skipping Tax.  Only Idaho, Wisconsin and South Dakota can make both these claims.
    • Enhanced family governance with LLC/PFTC structure.
    • Efficient - controls overhead and provides economies of scale.
    • PFTCs are generally exempt from registration as investment advisors with the Securities and Exchange Commission and may offer common trust funds and other pooling devices as well as provide other services which are exempt from registration under the Investment Company Act of 1940.  PFTC's have most all of the powers of a registered investment advisor.
    • Convenient and accessible.
    • The PFTC generally provides for maximum deductibility of trust administration fees and expenses.  Investment management fees that are integral to the trust may generally be deducted by charging an overall trustee fee that includes the investment management fee.
      • Investment management fees are normally subject to the 2% Adjusted Gross Income limitation.  This may not be the case with a PFTC.
      • Enhanced ability to properly administer and operate illiquid family assets in trust (i.e. LLC, FLPs, etc…).
      • PFTCs allow for better informed trust distribution and investment decisions.
      • Enables families to efficiently work with their own family office and all outside product advisors (i.e., investment, insurance, etc…).
      • Broad powers - a PFTC is the only form a family office can take to provide fiduciary services directly to family members rather than just supporting the family's individual trustees or unaffiliated corporate fiduciaries.