New Hampshire Family Trust Companies

Richard A. Samuels
Director, Corporate Department
March 1, 2009

A family trust company is a private, non-depository trust company that provides institutional fiduciary services within a single extended family.  Family trust companies, called family fiduciary services companies until revision of the law in 2010, have been formed in New Hampshire since the August 2006 effective date of the enabling legislation.

In New Hampshire, and in every other state of which we are aware, only individuals and banks that are authorized to exercise trust powers may act as fiduciaries.  Business corporations, professional associations, limited liability companies, not-for-profit corporations, and partnerships cannot legally act as fiduciaries.  The problem that this presents for family members acting as trustees and other individual trustees is that they cannot utilize entities to shield their assets from personal liability for alleged breaches of fiduciary duty, which is an especially serious concern given the high standard of fiduciary care of a trustee.  Such individuals are often reluctant to turn fiduciary reins over to institutional trustees, such as bank trust departments.  On the other hand, the creation of a private bank to act as corporate trustee has traditionally been an unduly expensive and burdensome proposition because of high capital requirements and the complications of bank regulation.

The New Hampshire Family Trust Company Act provides a reasonably affordable and simple solution to this problem.  Under New Hampshire law, there are three types of “trust companies”:  traditional commercial banks that exercise fiduciary powers, non-depository trust companies providing fiduciary services to the public, and family trust companies, non-depository trust companies providing fiduciary services to a single family.  All are incorporated under the New Hampshire banking laws, and all are limited liability entities providing owners, directors, officers, managers, and other employees with limited personal liability for the obligations of the entity.  Because they do not take deposits, non-depository trust companies, family trust companies included, are not banks under federal law and, for instance, are not required to have FDIC insurance and are not subject to federal bank regulator examination.

Formation.  New Hampshire family trust companies may be formed as corporations or limited liability companies, the tax attributes of which will be the same as any business corporation or business limited liability company that is not a bank.  The formation process is somewhat more involved than for a conventional business entity.  A New Hampshire family trust company must petition the state Bank Commissioner for a charter and pay a $10,000 examination fee.  The petition is reviewed by the state Banking Department, and the Bank Commissioner must consider and grant or deny the petition.  Despite the very public sounding nature of the process, all information in the application that is identified as confidential will be treated as non-public, confidential information by the Banking Department.

Capitalization.  A family trust company must have not less than $250,000 capital contributed to it.  Capital must be maintained at that level, but the capital need not be maintained in cash and can be invested in securities, subject to the restriction that no more than 15% of non-government investments may be in the securities of any single issuer, without Bank Commissioner approval.

Family Members.  A New Hampshire family trust company may generally not transact business with the general public and must restrict its services to members of a single family, which is defined by the familial relationships to a single individual designated by the family trust company.  The definition of “family” for the purposes of the law extends to family members within the fifth degree of lineal kinship to a designated individual and the ninth degree of collateral kinship to the designated individual.  In effect, one designated individual is the “center” of a fairly extended family. It also extends to the spouses of these family members.  (In addition, family trust companies may also provide services to up to fifteen non-family members if they are employees of the trust company or of the family-controlled companies.

Fiduciary Powers and Services.  A family trust company may exercise all fiduciary powers that can be exercised by a commercial, institutional trustee.  Because a family trust company is a limited purpose trust company, it may not accept deposits or make loans.  Its powers include managing trust and custodial investments, providing investment advice, and creating investment funds.  Of particular note, family trust companies may co-mingle trust assets in common trust funds under the Uniform Common Trust Fund Act, in effect creating private mutual funds, something that non-bank trustees may not do.  Banks, including family trust companies, are also permitted to provide investment advice under state and federal securities laws without registering as investment advisors.

Family trust companies may serve as executors, administrators, guardians or trustees for a family member.  They may act as trustees of charitable foundations or split interest trusts.  A family trust company may be a custodian of funds for family members, including minors.  Family trust companies may manage investments of family members and trusts for the benefit of family members and may manage the selection and monitoring of other investment managers.

Exemption from Banking Laws.  Although a family trust company is subject to regulation as a bank, it may request exemption from numerous state banking law provisions, including requirements for monthly meetings, audited financial statements, regular examinations, and maintenance of a surplus in addition to the required capital.