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A trust company is a corporation, especially a commercial bank, organized to perform the fiduciary of trusts and agencies. It is normally owned by one of three types of structures: an independent partnership, a bank, or a law firm, each of which specializes in being a trustee of various kinds of trusts and in managing estates. Trust companies are not required to exercise all of the powers that they are granted. Further, the fact that a trust company in one jurisdiction does not perform all of the trust company duties in another jurisdiction is irrelevant and does not have any bearing on whether either company is truly a "trust company". Therefore, it is safe to say that the term "trust company" must not be narrowly construed.
The "trust" name refers to the ability of the institution's trust department to act as a trustee – someone who administers financial assets on behalf of another. The assets are typically held in the form of a trust, 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.
A trust company can be named as an executor or personal representative in a last will and testament. The responsibilities of an executor in settling the estate of a deceased person include collecting debts, settling claims for debt and taxes, 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 and probate 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.
Environmental and historic preservation trustsEdit
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.
The trust company may also provide escrow services, invest education or retirement funds or hold 1031 Exchange proceeds where cash from the sale of US real estate is held in trust (for tax purposes) until used to buy replacement land.
Corporate trust servicesEdit
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.