Private trust company vs trust company: who should be your trustee?

The private trust company vs trust company question is really a question about who sits in the trustee's chair. With a professional trust company, the trustee is a business that makes trusteeship its activity and answers to a regulator. With a private trust company, the trustee is a company created to act for one family, with a board of its own and governance shaped around that family.

Neither option is better in the abstract. One gives you more influence over day-to-day decisions; the other gives you more distance between the family and the decisions. This page sets out the differences on control, oversight, cost model and continuity, so that you can see which trade-offs matter for your family.

What each option actually is

The professional trust company

A professional trustee is a company that acts as trustee for many clients as part of its business. Under Swiss law, the definition turns on activity: according to Art. 17(2) FinIA, a trustee is anyone who, on a professional basis, manages a separate pool of assets, or disposes of it, for a beneficiary or for a specified purpose, on the basis of a trust deed within the meaning of the 1985 Hague Convention. Art. 3 FinIA explains that an activity is professional when it is an independent economic activity carried out to obtain a regular income.

Trustees are financial institutions under Art. 2(1)(b) FinIA, in the same legal category as asset managers. They need an authorisation from FINMA and are supervised through a supervisory organisation. Other pages on this site explain what FINMA and SO-FIT approval means for you in more detail.

The private trust company

A private trust company, often shortened to PTC, is a company whose purpose is to act as trustee of one family's trust, or of a small group of related trusts. The family typically owns it, usually through a purpose trust or a similar holding arrangement, and appoints its directors. Those directors can include family members, a trusted adviser and one or more professional directors.

The point of the structure is control. Instead of asking an outside firm to take every decision, the family sits on the board that takes it. Our page on trustee services to a private trust company explains how a professional can support such a company without replacing its board.

A PTC does not remove the need for a trustee's duties to be met. The company is still the trustee, and its directors are still bound by the trust deed and by the duties owed to the beneficiaries. What changes is who sits behind the company.

Control versus oversight

The cleanest way to compare the two options is to start from one question: where do you want the balance between control and oversight to sit?

Control

With a PTC, the family can shape the board, set the pace of decisions and keep close to the investment and distribution choices. This suits families whose wealth is bound up with an operating business, a collection of real estate, or investments that need people who understand them from the inside.

With a professional trust company, the trustee makes decisions through its own committees and procedures. You can express your views through a letter of wishes and, where the deed provides for one, through a protector. Our guides on working with a protector and on letters of wishes and your trustee explain how far that influence goes and where it stops.

Oversight

A licensed trust company carries the oversight built into the Swiss regime. FINMA grants the authorisation, while the day-to-day checking of conditions is done by a supervisory organisation that is itself authorised and supervised by FINMA. Facts that change must be reported to that organisation in advance. In addition, Art. 62 FinIA requires an annual audit by an audit firm within the meaning of Art. 43k FINMASA.

A PTC places less of that outside structure around the decisions, unless the company itself falls under the licensing regime. Whether it does depends on the facts: where the company is established, whether its activity is professional within the meaning of Art. 3 FinIA, and how it is organised. That is a question for an individual analysis, not for a general page.

A family that chooses a PTC therefore has to build its own oversight: a board with independent members, written procedures, minutes, a clear conflict-of-interest policy and regular external review. The oversight does not disappear. It becomes the family's own responsibility to design and maintain.

The two options side by side

Control, cost, oversight and continuity at a glance

The following schema condenses the comparison on the four points that most families raise first.

What the law expects of a licensed trustee

Several rules apply to a professional trustee and give a sense of what you are comparing against. They are useful whether you stay with a professional or use a PTC with professional support.

• Legal form. A trustee based in Switzerland must be a sole proprietorship, a commercial company or a cooperative, and must be entered in the commercial register (Art. 18 FinIA).
• Management. The management must include at least two qualified persons, with adequate training and sufficient professional experience (Art. 20 FinIA).
• Capital. The minimum capital for asset managers and trustees is CHF 100,000, paid in cash. Appropriate security or professional liability insurance is also required (Art. 22 FinIA).
• Core duty. The trustee manages the separate pool of assets, looks after maintaining its value and uses it in line with its purpose (Art. 19(2) FinIA).
• Supervision. Asset managers and trustees are subject to FINMA supervision, which involves a supervisory organisation; ongoing supervision is carried out by supervisory organisations holding a FINMA authorisation (Art. 61 FinIA).

SO-FIT, for example, is a non-profit association authorised by FINMA that acts both as a self-regulatory organisation for anti-money-laundering purposes and as a prudential supervisory organisation for asset managers and trustees. The FINMA list of authorised asset managers and trustees names several supervisory organisations, including OSFINcontrol AG, AOOS, SO-FIT and OSIF.

These rules do not tell you whether a given trustee is the right one for you. They tell you what a licensed trustee has already been asked to show. A PTC that wishes to match that standard of governance can borrow the same disciplines voluntarily. Our guide to due diligence on your trustee lists what to check either way.

Cost model: how the two differ

Costs are structured differently, and this is often more important than the level of cost.

With a professional trustee, you pay for a service. The fees depend on the structure, the nature of the assets and the work involved, and they are indicated after the confidential assessment. Our page on how trustees are paid explains the main models, and the fee models side by side compare them.

With a PTC, you pay to run a company. That means directors, a registered office where relevant, accounting, audit and legal support, insurance for directors and a professional administrator or service provider if the board wants one. The family often finds that the company brings costs it did not budget for, because it is now responsible for functions the professional trustee used to carry.

A fair comparison asks what is included in each model. A PTC is not automatically cheaper or dearer. It is a different shape of cost, with more of the work, and more of the responsibility, moved inside the family.

Continuity: what happens when people change

A professional trustee is an institution. If one officer leaves, falls ill or retires, the firm assigns another. The trust does not depend on a single person, and our page on continuity planning when the trustee is not there shows why that matters.

A PTC can also be durable, but only if the family plans for it. The board needs a succession plan, the company's articles must say who appoints and removes directors, and the ownership structure must survive the death or incapacity of the family member who set it up. A PTC whose directors are all of one generation can become a weak point when that generation steps back.

There is also continuity of record-keeping. A professional trustee has systems, archives and compliance routines. A PTC needs the same, and if it uses a service provider for administration, the family should know what happens to the files if that provider changes.

When a professional trust company tends to fit

A professional trustee tends to suit families who:

• want independent decisions, particularly where the beneficiaries have different interests;
• prefer to rely on an institution's supervision rather than design their own;
• do not wish to take on the director's responsibilities that come with a board seat;
• need continuity that does not hang on one or two individuals;
• are setting up a trust for the first time and want to see how the relationship works before committing to more.

When a private trust company tends to fit

A PTC tends to suit families who:

• hold complex or unusual assets, such as an operating business, where the board benefits from people who know it well;
• want to be involved in the decisions, and are ready to carry the duties that come with them;
• have the means and the appetite to set up proper governance, with independent directors and written procedures;
• plan for several generations and intend to bring younger family members onto the board over time;
• accept that the structure needs regular external review.

Our page on a trustee for a trust holding a family business shows one situation where this question comes up often.

Example: a family that wants more say

Take a family established in Lausanne, entirely fictional, who set up a discretionary trust some years ago. The settlor is now elderly, and the adult children feel that decisions about the family company shares are slow, because the professional trustee refers each question to its internal committee.

They consider a PTC. On the board they would place two family members and an independent professional director. Decisions on the shares would be taken quickly and with knowledge of the business. In exchange, the family would have to appoint directors who can stand up to one another, record each decision properly and accept personal responsibility for the board's conduct.

They also see risks. If two board members are also beneficiaries, a distribution decision touching their own interests creates a conflict that has to be managed. The independent director becomes essential, not decorative.

In the end, they might choose a hybrid: a PTC for the business shares, with a professional trustee keeping the liquid assets. That is only an illustration. The right answer depends on the deed, the assets, where the family lives and where the beneficiaries live, and it needs an individual analysis. The page on trustee in combined structures covers how such arrangements are put together.

Questions to ask before you decide

• Who needs to take decisions quickly, and about what?
• Who will be on the board, and are any of them also beneficiaries?
• What outside oversight will the structure have, and who will monitor it?
• What happens if a director dies, falls ill or falls out with the others?
• Which functions will the family carry itself, and which will a professional carry?
• How will the structure be reviewed, and by whom?

If you are still weighing up the wider choice, how to choose a trustee in Switzerland offers a method that works for either route.

Choosing: it depends on your situation

There is no universal winner here. A professional trust company offers independence, a supervised framework and continuity built into an institution. A private trust company offers control, speed and closeness to the family's assets, at the price of designing and maintaining its own governance. Some families use one, some use the other, and some combine them.

The deciding factors are the nature of the assets, the relations inside the family, the residence of the settlor and the beneficiaries, and how much responsibility the family wants to carry. Selon votre situation, the answer may differ even between two families who look alike on paper, which is why a confidential assessment of your own structure is the sensible next step.