Evaluating Your PFTC State Situs: A Case Study
Date:
Dec 16, 2015
I was recently speaking with the general counsel for a private family trust company (PFTC), and they told me a compelling story about their recent PFTC state situs evaluation that I believe many in the PFTC world will find both informative and relatable. With their permission, I have shared it below (the names have been removed to respect the family’s privacy):
We first formed our PFTC just over a decade ago. It’s based in Wyoming and is unregulated, but over the years we’d had a multitude of family members complaining to us about how inconvenient it was to travel there. So about two years ago, we started asking ourselves: “Why exactly are we in Wyoming, anyway?” The PFTC landscape had evolved a lot over the last decade, so we started to look around and consider a change of situs.
We knew we wanted to be in an unregulated or lightly regulated state—primarily for confidentiality and privacy reasons—so the first thing we looked at were requirements for unregulated PFTCs. We also did an investigation of state trust laws, tax issues and operations requirements.
Additionally, we wanted to see how convenient the locations would be for the family and board members when it came time to hold our annual meetings. We also studied the trust laws in various states to better understand how sophisticated they were, and since privacy is very important to the family, we looked into the states’ disclosure requirements.
With these criteria in mind, we narrowed our initial list of states to Delaware, Florida, Nevada, New Hampshire, South Dakota, and Wyoming—mainly because they were trust-friendly states that were geographically convenient to at least one family member.
First, we eliminated Delaware because it didn’t have all the flexible, unregulated PFTC benefits we were looking for. South Dakota was eliminated because they would have required one of the board members to be a resident of the state. (With this particular family, an established board was in place and the family wanted to maintain its current composition)
Florida had a lot of appeal as a location, but its PFTC legislation had only been introduced in the spring of 2014. At the time, the legislative and lobbying groups were still tinkering with that legislation, so we felt it was too premature to move to Florida—maybe we’ll look at it again in five years.
We eliminated Nevada because its laws for unregulated PFTCs were not as flexible as we were looking for, so we focused in on New Hampshire and Wyoming. New Hampshire’s option is still slightly regulated instead of non-regulated, and even though they’ve been very PFTC friendly to-date, going from a regime where our PFTC was un-regulated to one with any regulation made some family members nervous. In the end, our investigation’s endorsement of Wyoming made family members comfortable knowing that, even though traveling to Wyoming might not be the most convenient place to meet, it’s a situs that works best for them and that they knew well.
Even though we ultimately stayed with Wyoming, we made a few changes: we moved the annual family meetings to Jackson, and also decided to leverage more out of those trips, holding board meetings along with family meetings and staff meetings over the course of a few days.
When you select a situs for your PFTC, there can be significant tax and regulatory implications depending on the state in question. Understanding your state’s perspective on PFTC-related issues and knowing how your PFTC situs sizes up against other states is important. Some families may have started in a certain state, only to realize years later it is no longer the right fit. It’s important for families to periodically evaluate their options—even if it ultimately means staying put.
We will be addressing these types of issues—as well as others that surround the current environment for existing PFTCs—regularly on the FOX Private Family Trust Company Network listserv and at our Network's events. Click here to learn more about the FOX Member Networks.