Home Shaping SuccessSM
March 11, 2010
(Updated April 12, 2010)
By W. John Funk*
New Hampshire has been aggressive in establishing itself as the state of choice for nondepository trust companies. (See: A Primer on Nondepository Trust Companies.) It views these kinds of companies as supporting professional high-end economic growth. One subset of these companies is a type of private trust company currently known as a family fiduciary services company. First placed on the state’s statutory books in 2006, the Trust Modernization and Competitiveness Act (Act) offers ultra-wealthy families an opportunity to have their own trust companies to manage their wealth over generations. And better yet, information relating to these companies is confidential so that their finances are not open to public view. To date, one family has taken advantage of the law.
A new bill, Senate Bill 421, is pending in the N.H. Legislature to make family fiduciary services companies even more attractive. It would create a separate chapter of the statutes to govern their formation and operation and re-name them “family trust companies”. I will refer to them as FTCs in this discussion.
Moreover, the state-of-the-art trust laws in New Hampshire make it the ideal place to be located for trust planning and administration. Any family with resources sufficient to field its own team of trustees and administrators should give serious consideration to organizing an FTC in New Hampshire.
An FTC is a company chartered by the New Hampshire Board of Trust Company Incorporation (BTCI) (the chartering authority may be transferred to the Bank Commissioner under a proposed bill, House Bill 1459) to engage in business with members of a family, but is prohibited from transacting business with the general public. Its charter expressly prohibits the company from making loans and accepting deposits. It is regulated by the New Hampshire Bank Commissioner.
What constitutes a family member is determined by reference to a “designated person” from whom all relationships are established. It is important to think carefully about who that person should be because he or she is the key link in the universe of persons who may be served by the FTC. Under the Act, the family members are comprised of:
A legally adopted individual is treated as a natural child of the adoptive parents. Lineal kinship refers to a family member who is in the direct line of ascent or descent from the designated relative. Collateral kinship refers to a relationship that is not lineal, but stems from a common ancestor. Degrees are calculated by adding the number of steps from the designated relative through each person to the family member either directly in the case of lineal kinship or through the common ancestor in the case of collateral kinship. No company, trust, charitable foundation, or other charitable entity is allowed to qualify as a family member if the Bank Commissioner determines such entity was organized or operated for the purpose of evading the limitations the Act.
The Act does allow an FTC to engage in any sales, solicitations, arrangements, agreements, or transactions to provide trust business services, whether or not for a fee, to no more than 15 natural persons who are not family members. In order for a person to be eligible to receive such trust business services, the person must be (1) an employee of the FTC or of a trust or company that is a family member; and (2) engaged principally in providing services to the FTC or its fiduciary accounts.
The organization of an FTC is commenced by the filing of a petition to the BTCI (in the future, the chartering authority may be the Bank Commissioner if Senate Bill 421 is enacted) requesting the grant of a charter by at least three individuals. An FTC may be in corporate or limited liability company form. The minimum capital is $500,000, although the actual capital may be higher if the BTCI or Bank Commissioner determines the risk attendant to a particular company requires more capital. There is also a requirement of the pledge of securities or a surety bond in an amount of up to $1,000,000 to defray the Bank Commissioner’s expenses if the company fails and must be liquidated. Senate Bill 421 would change the minimum capital to $250,000, but raise the pledge/surety bond to $1,250,000.
To attain the status of a "family trust company," the organizers must request the Bank Commissioner to allow the company to be exempt from the normal requirements that apply to banks. The petition is accompanied by an application fee of $5,000 (this amount may increase to $10,000 if House Bill 1613 is passed) and required information relating to the proposed company and its organizers, including the identity of the designated relative. All information related to the petition is confidential if an FTC is granted exempt status by the Bank Commissioner.
If the Bank Commissioner is satisfied with the information submitted with the petition, then the matter is referred to the BTCI for a decision. No notice or public hearing is required as part of the process. As a practical matter, the BTCI will consider whether the proposed organizational and capital structure and the amount of initial capital appear adequate, whether the proposed officers and directors or managers, as a group, have sufficient experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the proposed FTC will be free from improper or unlawful influence and otherwise will operate in compliance with law, and that success of the proposed FTC is reasonably probable and whether the proposed name of the proposed FTC is likely to mislead the public as to its character or purpose or is the same as a name already adopted by an existing bank, savings association, or trust institution in this state, or so similar thereto as to be likely to mislead the public.
If the charter is approved, then it is filed with the New Hampshire Secretary of State and the organizers are required to complete the organization of the company before the Bank Commissioner will issue a certificate of authority to engage in business.
An FTC is required to have a board of not less than 5 (only 3 if Senate Bill 421 is enacted) directors, trustees, or managers who need not be residents of New Hampshire or the United States, unless the Bank Commissioner issues an order requiring directors, trustees, or managers to be residents or citizens of the United States, based on a finding that the safety and soundness of such FTC is likely to be impaired, but in no event is the Bank Commissioner allowed to require more than one director or manager to be a resident.
The board of directors, trustees, or managers of an FTC must meet on a regular basis as often as necessary but not less than 4 times per year, unless the Bank Commissioner issues an order requiring directors, trustees, or managers to meet more frequently, based on a finding that the safety and soundness of such FTC is likely to be impaired. The officers include an executive officer or officers, a secretary, a treasurer, and such other officers as may be prescribed in its organizational documents. Such officers, except the treasurer, must be elected annually. The treasurer is also elected by the board of directors or managers but serves at their pleasure.
To maintain its status as an FTC and to maintain its exempt status granted by the Bank Commissioner, an FTC must file with the Bank Commissioner an annual certification that it is in compliance with the provisions of the Act and the conditions and limitations of all exemptions granted. This annual certification is required to be filed in the form required by the Bank Commissioner and accompanied by a fee of $100. The annual certification is required to be filed on or before December 31st of each year. The Bank Commissioner may examine or investigate the FTC periodically as necessary to verify the certification.
No more than once every 10 years after its organization, an FTC may designate, in any annual certification, a new designated relative to be effective on January 1st of the following year. This enables the family members served by an FTC to evolve over time. A designation of a new designated relative is accompanied by a fee of $1,000. No former family member who is rendered ineligible to receive services as a family member as a result of the designation of the new designated relative is permitted to continue to receive services as a family member from the FTC on or after the new designated person is appointed.
An FTC may lose its status as an exempt trust company if it fails to comply with the requirements of the Act or violates orders of the Bank Commissioner. In such case, it would become a non-depository trust company and be subject to all the requirements of New Hampshire banking law. An FTC may voluntarily convert its charter into a non-depository trust company and engage in business with the public if permitted to do so by the Bank Commissioner.
If you wish to discuss the features of family trust companies in more detail, please contact John Funk at 603-228-1181 or . Attorney Funk has extensive experience in the formation and operation of nondepository trust companies.
* John Funk is admitted in New Hampshire, Massachusetts and Vermont.
You may contact
John Funk at 603-228-1181.