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Independent v. Institutionalized Trust Companies: In Defense of the New Paradigm

Over the past four decades, the financial services industry witnessed extraordinary developments in U.S. trust law, beginning in 1983 when South Dakota abolished the Rule Against Perpetuities, clearing the way for the first dynasty trust state in the nation. Modern trust law concepts such as domestic asset protection, strong privacy provisionsdirected truststrust protectors, and decanting revolutionized the trust industry, directly addressing and resolving inherent conflicts of interest and lack of control that families were forced to endure under the traditional, institutionalized trust company model – where asset management, trust services, banking, and often insurance, were sold to families through a “big bank bundled” approach, wrought with hidden and excessive fees and high turnover.

The U.S. Trust Industry Transformed: A New Paradigm

Without a state income tax, top-tier U.S. jurisdictions with powerful modern trust law planning tools, such as South Dakota, offered compelling tax planning opportunities for families across the nation. The vital importance of selecting the proper trust jurisdiction became paramount, with some suggesting that it is a breach of fiduciary duty, or even malpractice, to place a trust in an unfavorable tax, asset protection, or privacy jurisdiction.

Fueled by exciting developments in modern trust law, independent “boutique style” trust companies that did not manage assets, such as Bridgeford Trust Company, proliferated in top-tier jurisdictions, and families were able to avail themselves of the most progressive trust laws in the nation, engage in prudent tax planning, and avoid conflict of interests, while not giving up direction and control. A market-driven correction to a highly flawed trust industry, and a new paradigm was born – indeed an exciting time in the U.S. trust industry.

International Conglomerates and the Infusion of Private Equity

The new paradigm in the U.S. trust world developed a huge market opportunity for independent/directed trust companies. This attracted the attention of major international financial services “conglomerates” and private equity firms – all looking for a “piece of the action” and to capture or, in many instances, retain revenue going to independent trust companies in top-tier U.S. trust jurisdictions.

The negative impact of this attention is already being felt in the U.S. trust industry. Large international, multifaceted, and institutionalized financial services providers from all over the world have established trust companies in top-tier jurisdictions, often without essential fiduciary talent, requisite understanding of U.S. trust law, or how to properly administer trusts in a given state.

Perhaps more troubling, many of these massive companies – often fueled and emboldened by private equity dollars – are buying independent trust companies in top-tier jurisdictions, including recently in South Dakota. Independent trust companies that were originally founded on the principal that the trust industry was in need of an independent, conflict-free, and non-institutionalized approach, have been rendered institutionalized, no longer boutique, and, most disturbing, no longer conflict-free. An unfortunate development for the U.S. trust industry for certain, as once independent trust companies created in the vein of a new paradigm, as a panacea for all that was wrong with the U.S. trust industry, now have become part of the very problem they sought to remedy.

Bridgeford Trust Company: Big Enough to Matter, Small Enough to Care

The trust industry, at its essence, is and always will be a relationship business. The past 40 years have clearly demonstrated that trustee services are best executed through a boutique, conflict-free, fully independent, personalized, and non-institutionalized approach. Large families not only crave this approach, but increasingly have come to expect and demand it from their corporate trustee. Bridgeford Trust Company passionately embraces modern trust law and the new paradigm and executes a service model committed to these attributes with an entrepreneurial focus on education, creativity, attention to detail, and great responsiveness.

Now the oldest and largest independently owned South Dakota chartered trust company, Bridgeford Trust Company provides boutique, conflict-free, and innovative trust and fiduciary services and progressive U.S. modern trust law solutions around asset protectionprivacy, and tax planning to domestic and international families across the country and around the world. Our large families are served by outstanding and highly experienced trust officers working from offices in Sioux Falls and Pierre, South Dakota.

Over the past 25 years, Bridgeford Trust Company evolved from one of South Dakota’s first private trust companies into a public, fully independent, and modern trust company serving the global ultra-high net worth and family office space, leveraging over 125 years of combined legal, accounting, and trust administrative experience executed through our talented and growing staff of fiduciary professionals comprised primarily of JDs, CPAs, CFAs, and CTFAs. With a fiercely independent spirit and a deep passion for the power of modern trust law, Bridgeford Trust Company is committed to serving domestic and international families with its conflict-free, personalized, and non-institutionalized paradigm for many years to come.

For more information, we encourage you to watch this independent v. institutionalized trust companies video on Bridgeford’s YouTube Channel and contact Bridgeford Trust Company’s team with any questions at (605) 224-9189 or online.

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McKonly & Asbury is able to offer an extension of trust and fiduciary services to our clients and friends of the firm through our partnership with Bridgeford Trust Company. As a fully independent trust company chartered in South Dakota, Bridgeford Trust Company provides conflict free and innovative fiduciary services and progressive U.S. modern trust law solutions around asset protection, privacy, and tax planning to domestic and international families across the country and around the world.

You can learn more about Bridgeford Trust Company and the South Dakota Advantage at www.bridgefordtrust.com.

About the Author

McKonly & Asbury

McKonly & Asbury is a Certified Public Accounting Firm serving companies across Pennsylvania including Camp Hill, Lancaster, Bloomsburg, and Philadelphia. We serve the needs of affordable housing, construction, family-owned businesses, healthcare, manufacturing and distribution, and nonprofit industries. We also assist service organizations with the full suite of SOC services (including SOC 2 reports), ERTC claims, internal audits, SOX compliance, and employee benefit plan audits.

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