Large companies almost always utilize the services of a large bank as an independent trustee.

Banks, insurance companies, brokerage firms, and financial planning firms are all vying for a piece of your portfolio. As a result, consumers often find their assets scattered among these institutions. One solution to this problem is a trust company, which can provide a variety of investment, tax, and estate planning services for clients. This article will provide a high-level overview of the nature and function of trust companies, as well as the services they offer.

By definition, a trust company is a separate corporate entity owned by a bank or other financial institution, law firm, or independent partnership. Its function is to manage trusts, trust funds, and estates for individuals, businesses, and other entities. A trust is an arrangement that allows a third party or trustee to hold assets or property for a beneficiary or beneficiaries.

Trust companies get their title from the fact that they act in a fiduciary capacity for their clients—as trustees. A fiduciary is an organization or an individual with the responsibility to act on behalf of others to manage their assets.

The majority of a trust company's assets are held in actual trusts, with the trust company named as the trustee. Trust companies generally employ several types of financial professionals, including financial planners, attorneys, portfolio managers, CPAs, and other tax professionals, trust officers, real estate experts, and administrative personnel.

A trust company is a separate corporate entity owned by a bank or other financial institution, law firm, or independent partnership.
A trust is an arrangement that allows a third party or trustee to hold assets or property for a beneficiary or beneficiaries.
A trust company manages trusts, trust funds, and estates for individuals, businesses, and other entities.
Trust companies perform a wide range of services related to investment and asset management as well as safekeeping services.

Trust companies perform a wide range of services related to investment and asset management. Of course, one of the primary functions of most trust companies is managing the investment portfolios within the trusts of their clients. The investment management is done either in-house or by an affiliated third-party manager selected by or recommended to the client.

A wide variety of investments, ranging from individual securities and mutual funds to derivatives and real estate, can be employed to achieve various investment objectives, such as growth or income. Special services are also available for high-net-worth clients, including alternative investments, such as limited partnerships, natural resources, private equity, and hedge funds. Regardless of the type of management used, investment management is always customized for each client's risk tolerance and time horizon.

Trust companies also can provide safekeeping services within secure vaults for other types of tangible investments or valuables, such as jewelry and collectibles. Often financial planners are employed to produce comprehensive financial plans for clients, covering all aspects of a client's financial life, including investments, insurance, and retirement planning. A planner might also focus on a specific segment of a client's finances, such as investment or college planning. Comprehensive income, gift, trust, and estate tax return preparation and planning are also standard fare for many trust companies. Even escrow services and holding accounts for proceeds from 1031 exchange real estate transactions can be provided, if necessary. Section 1031 is an Internal Revenue Code (IRC) provision that allows taxes to be deferred on qualifying assets such as real estate.

Trust companies can handle all aspects of the estate settlement process, including valuation, dispersion, and re-titling of assets, payment of debts, and expenses, estate tax return preparation, the sale of closely-held businesses, and all other necessary tasks related to passing on the property of a deceased grantor or client. Trust companies often end up working with their clients' heirs as well, providing the same array of services to the estate assets' recipients as to the donor.

Corporate trust services can provide assistance with both the issuance and administration of corporate debt. Corporate trusts might distribute the interest payments from the corporation to the bondholders and ensure that the issuer is adhering to the covenants of the bond agreement.

Trust companies manage all phases of the trust creation, administration, and disposition processes. Although there are many different types of trusts, they usually fall into two types of categories.

A revocable trust is a trust that can be changed at any time. For example, the beneficiaries could be changed, or the trust can be dissolved. The owner of a revocable trust maintains control over the trust at all times. The owner or grantor can be the beneficiary or name anyone.

An irrevocable trust doesn't allow any changes nor can the trust be dissolved without the permission from the beneficiary. Irrevocable trusts are helpful in avoiding taxes on gifts or protecting the beneficiary's inheritance from any legal actions from creditors if the beneficiary has financial issues later in life.

Other types of trusts include:

Trust companies can provide a wealth of services to clients from one convenient, centralized location. They save their clients time and effort by eliminating the need to coordinate financial assets and information between brokers, financial planners, tax advisors, tax preparers, and attorneys. Trust companies also take full fiduciary responsibility for their clients' financial well-being, thus assuring that the clients' best interests are always considered in each service and transaction performed.

Consumers who want to engage the services of a trust company will have many local entities from which to choose. Virtually all major banks and savings institutions offer trust services through a separate department. Still, most clients who wish to employ a trust company must generally meet certain financial requirements; for instance, a trust may require the client to have a net worth of at least $500,000.

Trust companies provide a wide array of services, ranging from trust and investment administration to comprehensive wealth management services, such as tax preparation, tax advice, and financial planning services. For consumers seeking a 'one-stop-shop' approach to the management of their financial affairs, trust companies may offer the perfect solution.

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INTERNAL CONTROL AFFECTING LIABILITIES AND EQUITYINTERNAL CONTROL OVER ACCOUNTS PAYABLEThe termaccounts payable(often referred to asvouchers payablefor a voucher system) is used todescribe short-term obligation arising from the purchase of goods and services in the ordinary course ofbusiness. Typical transactions creating accounts payable include the acquisition on credit ofmerchandise, raw materials, plants assets and office supplies.Other sources of accounts payable include the receipt of services, such as legal and accounting services,advertising, repairs and utilities. Interest-bearing obligation should not be included in accounts payablebut shown separately as bonds, notes, mortgages, or installment contracts.Invoices and statements from the purchase of goods or services and mostother liabilities.However,accrued liabilities(sometimes calledaccrued expenses)generally accumulate over time, andmanagement must make accounting estimates of the year-end liability. Such estimates are oftennecessary for salaries, pension, interest, rent, taxes and similar items.In thinking about internal control over accounts payable, it is important to recognize that the accountspayable of one company are the accounts receivable of other companies. It follows that there is littledanger of errors being overlooked permanently since the client’s creditors will generally maintaincomplete records of their receivables and will inform the client if payment is not received. This featurealso aids auditors in the discovery of fraud, since the perpetrator must be able to obtain and respond tothe demands for payment. Some companies, therefore, may choose to minimize their record keeping ofliabilities and to rely on creditors to call attention to any delay in making payment. This viewpoint Is notan endorsement of inaccurate or incomplete records of accounts payable, but merely recognition thatthe self-interest of creditors constitutes an effective control in accounting for payables that is not presentin the case of accounts receivable.Discussion of internal control applicable to accounts payable may logically be extended to the entirepurchase or acquisition cycle.Potential Misstatements- Account PayableDescription of MisstatementExampleInternal Control Weakness orFactors that Increase the Riskof the MisstatementInaccurate recording of apurchase or disbursementFraud:A bookkeeper preparesa check to himself andrecords it as havingbeen issued to majorsupplier.Error:Inadequate segregationof duties of recordkeeping and preparingcash disbursements, orcheck signer does notreview and cancelsupporting documents.

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Large companies almost always utilize the services of a large bank as an independent trustee.

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