The Private Trust Company - Greenberg Traurig LLP

the PTC and participated in the daily activities
of the PTC without causing the value of the
trusts to be included in their estates for federal
estate tax purposes; 4 and
� For generation-skipping transfer tax purposes,
naming a PTC as trustee did not adversely impact
a trust’s exempt status. 5
Preferred PTC Structure Based on PLRs
The three PLRs seem to provide the boundaries for
structuring the PTC – from most restrictive to
somewhat flexible. The PTCs examined in the PLRs
included the following key features:
� The board of directors had at least one board
member that was not a family member, or a
grantor of, a donor to, or a current or contingent
beneficiary of a trust (i) of which any family
member was a grantor, donor, or current or
contingent beneficiary and (ii) for which the
trustee had any discretionary power (other
than an investment power) that was not limited
by an ascertainable standard; 6
� In PLR 20053003, the board of directors
appointed a Distribution Committee (a/k/a
Discretionary Decisions Review Committee in
PLRs 200546055 and 200548035) to make
discretionary distributions of trust principal
and income.
� In all three PLRs, the Distribution Committee
was subject to restrictions with regard to
discretionary distributions of trust principal and
income. The restrictions were critical in
protecting the grantor and beneficiaries from
causing the value of the trusts to be included in
their estates for federal estate tax purposes.
PLR 200523003 provided strict rules regarding the
composition of the Distribution Committee. Trust
grantors (and their spouses) as well as current and
contingent beneficiaries (and their spouses) were
prohibited from serving on the Distribution
Committee. Any person considered related or
subordinate to a grantor or current or contingent
beneficiary was also prohibited from serving on
the Distribution Committee. No member of the
Distribution Committee could participate in any
discretionary decision with respect to any trust
beneficiary to whom he or she owed a legal obligation
of support. And the majority of the
Distribution Committee members could not be
employees or directors of the PTC.
In contrast, PLRs 200546055 and 200548035 provided
more flexibility with respect to discretionary
distributions. Initial discretionary distribution decisions
were made by PTC trust officers subject to
review by senior trust officers. Upon the written
request of a beneficiary, the Distribution
Committee (appointed by the PTC’s board of
directors and comprised of at least three directors)
would review the discretionary distribution
decisions made by the PTC trust officers. A variety
of restrictions prevented this arrangement
from causing estate tax inclusion for the grantor
and beneficiaries. For example, discretionary distributions
decisions were required to be made by
non-family PTC trust officers, and PTC officers and
directors were prohibited from participating in any
discretionary distribution decision with respect to
a trust if the officer or director, or his or her spouse,
is a grantor, donor, or a current or contingent beneficiary;
or if the officer or director, or his or her
spouse, is a family member.
Conclusion
PTCs offer high net-worth families significant flexibility.
Three recently issued PLRs provide important
guidance for advisors on how to structure and
operate a PTC in order to avoid common estate
planning pitfalls. As a result of this guidance, PTCs
may become more widely utilized.
The Private Trust Company – A Fiduciary Services
and Asset Management Alternative for High Net-Worth Families Page 2