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Four Tips to Keep PFTCs in Compliance

Failure to do so may drain resources away from its core mission.

A Private Family Trust Company offers families the ability to have intergenerational governance over family assets and provides a private forum for decision-making. However, if the PFTC doesn’t have the proper operational model, it could become another headline story about family discord and mismanagement. Appropriate internal controls, fiduciary oversight and regulatory compliance protect the family from:

  • Theft by a PFTC employee
  • Inappropriate exercise of fiduciary oversight, resulting in claims by beneficiaries
  • A negative audit by a regulator or auditor, undermining family confidence in the PFTC
  • Violation of statutory or regulatory requirements by the PFTC

All of these expose the PFTC to costly litigation and the potential for significant liability, which could result in the dissolution of the PFTC. The following guidelines provide a framework for ensuring a PFTC avoids these issues:

  1. Decisions must be made by those with the authority to make them. The board, committee members and officers must be properly appointed and only act within the scope of their authority. All decisions regarding the operation of the PFTC and the exercise of its fiduciary oversight must be made by the correct decision-maker and in accordance with the rules provided in the governing documents and applicable policies and procedures.
  2. Actions and implementation of decisions must be performed as detailed in the PFTC’s policies and procedures. Its policies and procedures should comply with statutory and regulatory requirements as well as be in accordance with best practices in light of the PFTC’s operational and staffing model. 
  3. Decisions and actions should be properly documented and retained. This allows the PFTC to confirm it complied with the rules outlined in its governing instruments and policies and procedures.
  4. Policies and procedures must be reviewed regularly and verified to ensure that the PFTC is complying with them. They must be able to evolve to reflect business practices and statutory and regulatory changes.

Operating a PFTC so that it avoids audit and regulatory risk allows that PFTC to fulfill its mission of providing intergenerational governance over family assets. Failure to do so may drain resources away from its core mission.  

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