Ohio Allows Licensed and Unlicensed Family Trust Companies

In September, 2016, the Ohio Family Trust Company Act became effective, allowing for both unlicensed and licensed family trust companies in Ohio. Ohio joined more than 15 states who were already allowing family (private) trust companies. Some of these states included Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming with Missouri joining the list just ahead of Ohio in 2016. Ohio is one of only a few states allowing an unlicensed (unregulated) option.

Although an unlicensed family trust company is not subject to regulation by the Ohio Division of Financial Institutions, it is required to file an annual affidavit confirming its compliance with the Ohio statutory limitations. The primary limitation is the ability to only serve “family members” and not hold itself out to the public. Beyond including the lineal descendants of a specified ancestor, the family member definition encompasses spouses, spousal equivalents, adopted children, stepchildren and foster children. In addition, the definition encompasses family charities, family estates, irrevocable trusts with family beneficiaries, key employees, trusts formed by key employees, and business entities wholly owned and operated by family members.

A licensed family trust company has a slightly broader definition of family members, but it must follow specific statutory requirements which are outlined below:

• File an application with the Ohio Division of Financial Institutions with an application fee of $5,000
• Maintain capital of at least $200,000, but not more than $500,000 as determined by the Ohio Division of Financial Institutions
• Pledge to the treasurer of Ohio $100,000 in an account of the treasurer of Ohio
• Maintain a fidelity bond of not less than $1M
• Secure Directors & Officers insurance of not less than $1M
• Maintain office space in Ohio
• Have a minimum of three directors or managers, at least one of which is an Ohio resident
• Hold at least one regular meeting during each calendar quarter with at least two board meetings at which a quorum of board members is physically present are held in Ohio
• Board of Directors must quarterly review financial statements or, in the alternative, an annual financial audit must be performed
• Board of Directors must take an oath to administer the Family Trust Company affairs diligently & honestly
• The name of the company must include “family trust company” or “FTC”; Note, an unlicensed family trust company may not include these terms in its name
• Employ or contract with at least one individual on a part-time basis to provide services to the FTC
• Perform at least three of the following trust administration activities wholly or partially in Ohio:
  
  • Annual account reviews
  • Annual investment reviews
  • Trust accounting
  • Account correspondence
  • Completion of trust tax returns
  • Distribution of account statements
• Prepare a Policy & Procedure Manual outlining the FTC’s operations
• Ensure compliance to federal & state requirements such as the issuance of Crummey letters and annual trust statements
• Document each Board and Committee meeting with thorough minutes
• The Department of Financial Institutions will audit the activities of the FTC not later than 18 months after receiving its license and thereafter at least every 36 months

The ability to set up a family trust company in Ohio saves Ohio families and families from nearby states from the travel expenses of setting up a family trust company in other states, not to mention the convenience of operating in Ohio. Clearstead can help understand the different options in Ohio as well as other statues. Start the conversation now!

^{Disclosures: The information provided is general in nature, is provided for informational purposes only, and should not be construed as financial or legal advice. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All financial decisions must be evaluated as to whether it is consistent with your objectives and financial situation. You should consult with a financial, tax or legal professional before making any decisions.}