Trust Companies

A trust is anything of value, such as money or personal property which is committed into the care of another for the safekeeping, use or benefit of the owner. This implies confidence on the part of the owner in the integrity and reliability of the person trusted who is called the trustee. Trustees are appointed because those who have property either cannot or, for one reason or another, prefer not to act for themselves. Thus, while all banks are in a broad sense trustees for their depositors in that they care for the deposits of their customers, a certain group of banks are organized primarily for the purpose of administering trusts and acting in a fiduciary capacity generally. Such banks are called Trust Companies. Trust companies are of comparatively recent origin and they are the newest of the three great groups of banks. The step in their development or evolution has not been from the bank to the trust company, but from the individual trustee to the corporate trustee or trust company. In the early days of the country, individuals assumed the obligation of trustees for other individuals and in fact this custom still obtains, especially in sparsely settled districts. As men have become more wealthy and as accumulations of property have increased, there has arisen the need for some organized and efficiently trained body of men who could administer the estates and affairs of other men whether living or dead. There are many reasons why the trust company is better fitted than the individual to perform the functions of a trustee. The individual trustee may die, or move away, or become incapacitated through illness or lack of knowledge of the law. The trust company may be said to be perpetual; it is managed by men trained both in law and in finance who give their entire time to this particular business.

Trust companies act not only for individuals, but also for societies, corporations and municipalities. Their principal functions are to act as executor of wills, administrator of estates, guardian of minors, agents for individuals, trustee under mortgages, transfer agent and registrar for corporations, fiscal agent for governments, states and municipalities, and receiver for firms and corporations. As executor or administrator they administer the estate of the deceased according to the law, and the fees for such service are fixed by law at the same rates as individuals are permitted to charge for like services. As agents for individuals they may care for property, collect rents and perform whatever other duties they may be charged with. As trustee under mortgages, the trust company safeguards the interests of the mortgagee and will foreclose the mortgage if principal or interest are unpaid at maturity. This particular feature of the trust company's business is usually confined to acting as trustee under a bond issue which is secured by a mortgage upon corporation property. As transfer agent and registrar, the trust company certifies as to the genuineness of either a stock or bond issue and records all transfers of such stock or bonds. The company does not guarantee the payment of bonds or of dividends upon stock; it merely vouches for the regularity of issue and the validity of the transactions involved. As fiscal agent for civic divisions, money is collected and disbursed upon warrants and in the payment of interest on bond issues, etc. In addition to the above, trust companies act in various other capacities of a similar nature.

The banking department of a trust company is conducted like any other bank. Deposits are received subject to check, interest is allowed on savings deposits, and in practically every particular this branch of the business is the same as that of the ordinary bank of deposit and discount.

Tellers receive and enter deposits, pay checks, collect drafts and notes; bookkeepers keep ledgers and make credit and debit records just as the work is done in any other bank, and similar books and systems of accounting are used. In Minnesota, Michigan and Wisconsin, trust companies are not permitted to do an active banking business, but are restricted to the handling of trusts and other fiduciary matters. As to loans and investments permitted trust companies, state laws differ, but the general statement is true that they employ their funds just as do the commercial state banks.

It is chiefly in the trust department that the functions of a trust company are distinctive. The estates and funds of both the living and the dead are cared for by this department. The organization of the trust department is kept separate from the banking department. As money is received by the trust department representing the income from property or investments of funds held in trust, it is deposited in the banking department and is checked against by the trust department as if the department were an outside depositor or customer. It would be possible for either department to exist without the other. The field of the trust company has become so highly developed and its trust functions have become so well understood by the public that there is a growing demand for a further extension of trust company powers. This is evidenced by one of the provisions of the Federal Reserve Act, which gives to national banks the privilege of acting in a fiduciary capacity when not in contravention of state laws.