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Atrust company is acorporation that acts as afiduciary,trustee or agent of trusts and agencies. Aprofessional trust company may be independently owned or owned by, for example, a bank or alaw firm, and which specializes in being a trustee of various kinds of trusts.
The "trust" name refers to the ability to act as atrustee – someone who administers financial assets on behalf of another. The assets are typically held in the form of atrust, a legal instrument that spells out who the beneficiaries are and what the money can be spent for.
A trustee will manage investments, keep records, manage assets, prepare court accounting, pay bills (depending on the nature of the trust), medical expenses, charitable gifts, inheritances or other distributions of income and principal.[1]
A trust company can be named as anexecutor or personal representative in alast will and testament. The responsibilities of anexecutor in settling the estate of adeceased person include collectingdebts, settling claims fordebt andtaxes, accounting for assets to the courts and distributing wealth to beneficiaries.
Estate planning is usually also offered to allow clients to structure their affairs so as to minimize inheritance taxes andprobate costs. In the United States, one of the primary profit centers for a trust company is commissions earned from selling various types of insurance products designed to minimize the estate tax charged to a person.
A trust officer may provide guardian and conservator services, acting as guardian of a minor's property until adulthood or as conservator of the estate of an adult unable to handle his or her own finances.
Some trust companies are formed not merely for the benefit of a minor or an individual trustee, but for the preservation of nature or historic sites.
A trust department provides investment management, includingsecurities market advice, investmentstrategy and portfoliomanagement, management ofreal estate and safekeeping of valuables.
The trust company may also provideescrow services, investeducation orretirement funds or hold1031 Exchange proceeds where cash from the sale of US real estate is held in trust (fortax purposes) until used to buy replacement land.
Trust companies may also perform corporate trust services. Corporate trust services are services which assist, in the fiduciary capacity, in the administration of the corporation's debt. For example, in a normal bank loan, the lender normally lends money to the company (usually with conditions called "covenants"), accepts payments from the company monthly, and monitors the financial conditions of the company to ensure that it is meeting all its agreed upon conditions (for example, that its ratio of profits to expenses stays above a certain amount). However most large companies borrow money not from banks, but by selling bonds. When the company sells bonds, a corporate trust company can handle the acceptance of payments from the company (which it passes on to the bondholders), and is the entity which monitors the company to ensure it is meeting covenants. In the event of the company's bankruptcy, the corporate trust company represents the interests of the bondholders and acts to recover as much of the loan proceeds as possible.
In Canada, trust companies have historically provided many of the same services as thebig-five banks. They are legally not banks, but hold a "near"-bank status which situates them legally very close to the USsavings and loan associations, UKbuilding societies or other non-bank deposit-taking institutions such ascredit unions.
According to the CanadianOffice of the Superintendent of Financial Institutions, "trust and loan companies are financial institutions that operate under either provincial or federal legislation and conduct activities similar to those of a bank".[2] Deposits andGICs are insured by theCanadian Deposit Insurance Corporation in the same manner as bank deposits.[3]
While Canadian trust and loan companies nominally cannot accept retail deposits or issuedebentures, they may receive money on deposit in trust, repayable on demand or after notice. As no statute prevents the companies from according chequing privileges to their depositors, effectively the trust companies are at liberty to receive monies which the depositor can treat much like bank savings or chequing accounts.[4] The institution may then employ these assets (less a legally-requiredfractional reserve) to issuesecured loans, such asmortgages.
Once a common feature on Canada's retail banking landscape, free-standing retail trust companies are disappearing; the largest institutions have increasingly fallen prey to consolidation and takeover by the major banks. Prominent examples includeCanada Trust (founded 1864 as Huron and Erie Savings and Loan Society, acquired byToronto-Dominion Bank in 2000),Montreal Trust Company (established 1889, acquired byScotiabank in 1994), National Trust Company (established 1898, acquired by Scotiabank in 1997)[5] andRoyal Trust (founded 1892, bought byRoyal Bank of Canada in 1993). A few small or captive trust and loan companies, such as theEquitable Trust Company,B2B Trust andCivil Service Loan Corporation, have restructured to legally become federally-regulated banks.
Unlike banks, Canadian trust companies can administer estates, trusts, and pension plans. Banks cannot conduct these activities unless they are done through a separately created trust subsidiary.[6] In 2023, there were 43 federally-regulated trust companies in Canada[7] but many of these were owned or controlled by banks or other institutions assubsidiaries.
