As reported here by the WSJ, the über wealthy are increasingly setting up their own privately-held family trust companies or “FTCs” to administer their trusts. Here’s an excerpt:
It isn’t enough to have a trust fund any more. The next step is to have your own trust company.
A small but increasing number of the super rich are setting up their own trust companies — boutique trust firms owned or controlled by wealthy families themselves. Some want more say over how their trust assets are handled; others want to consolidate a bunch of family trusts under one umbrella.
This isn’t a game for the average trust-fund baby. Families typically should have at least $100 million to set one up, and most that do have at least $250 million. Experts estimate there are only a couple hundred private trust companies in the U.S.
Still, their numbers have increased in the past decade as trust lawyers begin to tout their benefits. John P.C. Duncan, a Chicago lawyer who specializes in private trust companies, is setting up 16 this year, compared with only five four years ago. The South Dakota Trust Co., Sioux Falls, which provides back-office and other services for private trust companies, is helping to administer 12 private trust companies this year, up from five last year.
The WSJ piece was published in 2007. To maintain its edge in the hyper competitive trust-fund business, Florida needed to react to this new trend, and it finally has. With the passage of CS/SB 1238, effective October 1, 2015, we now have the “Florida Family Trust Company Act,” found in F.S. Chapter 662. The dollars at stake in this kind of planning are going to be significant, so if you’re thinking about setting one of these up you’ll want to get the lay of the land. First, read the legislative Staff Analysis summarizing the new act. Second, read Florida Family Trust Companies: Tax and Nontax Considerations, an excellent article in this month’s Florida Bar Journal explaining the nuts and bolts of the new act. Here’s an excerpt:
On June 13, 2014, Governor Scott signed the Florida Family Trust Company Act, creating F.S. Ch. 662. The act, which becomes effective October 1, 2015, governs the formation and operation of family trust companies (FTC) in Florida. At least 14 other states currently have legislation authorizing FTCs (private trust companies). The act, together with favorable trust law and the absence of a state income tax, should allow Florida financial, banking, accounting, and legal service providers to gain a share of the growing FTC business. However, unresolved federal income and transfer tax issues continue to loom over the use of FTCs, whether in Florida or elsewhere. This article provides an overview of the act and discusses key tax and nontax considerations related to FTCs.
FTC Statute in Limbo?
Proving once again that when it comes to politics nothing’s ever certain, Michael Dribin, who chairs the Florida Bar’s RPPTL Section, contacted me after this blog post was first published to let me know that due to the legislative shenanigans ongoing in Tallahassee (see here), our brand new FTC statute is now in limbo. Here’s Mike’s explanatory email. If anyone wants more details, you should contact Mike directly.
Juan, I am not adept in logging in to blogs, so I am sending you this email, as to the Family Trust Company issue—this is as recent as yesterday (4.28).
The legislation which is on the books now was passed by the Legislature in the 2014 session. This was the result of a 4-5 year effort on the part of the RPPTL Section and others. A major aspect of the proposal included regulatory oversight by the Office of Financial Regulation (OFR). At some point just before this was filed in 2014, there was a problem with the details with OFR. As a consequence, the bill passed in 2014 without those essential regulatory provisions. The effective date was postponed until October 1, 2015, in anticipation of the problem with OFR being remedied in time for the 2015 Legislature to pass the necessary language and amend the already existing law.
That was exactly what was happening until yesterday afternoon when the House adjourned three days early. The proposal was expected to pass both the House and Senate this week. However, with the House adjourning yesterday, the Senate withdrew it from consideration.
If you and I had communicated on this as recently as yesterday morning, I would have told you it looked like this would pass and have amended the existing statute without a problem. As it stands now, there is no way to create a Family Trust Company in Florida, in spite of the statute you referred to.
If you wish to include my comments in your blog, please feel free to do so. You may indicate that I am chair of the RPPTL Section.
Fellow, American College of Trust and Estate Counsel, Board Certified, Wills, Trusts and Estates Law
Direct telephone: 305.577.5415