Special Purpose Entity

This has distinguished the USA as one of the most popular countries for these types of entities. Special Purpose Entities are US LLCs or some other form of corporation that houses the trust protector, as well as the investment and distribution committees or advisors. It is not a trust company but still must register with the US Division of Banking, which only further ties the entity to the USA and SEC. This can be very beneficial for income tax, asset protection, and purpose trust situs. The sole purpose of the Special Purpose Entity is to direct the administrative trustee as to the trust investments, distributions, and trust protector functions. The utilization of a Special Purpose Entity may also maximize trust situs for income tax, asset protection, and trust law purposes. Please see the example below:

Special Purpose Entity (US LLC)

  • Board of Directors
  • Trust Protector
  • Investment Committee
  • Distribution Committee
  • Not a trust company
  • D&O, E&O Insurance
  • Unique US Statute
  • More ties to US Situs
  • Administrative Trustee

USA Trust Company

US Investment LLC
(US Trust Company® – Member)
(Family members or other – Manager)
Investment Management

The Special Purpose Entity alternative must generally be used in combination with the “directed trust” structure. The Special Purpose Entities places a liability umbrella over the heads of the individuals filling the roles of Trust Protector, Investment Committee, and/or Distribution Committee. These individuals are, in turn, employed (i.e., employees or agents) by the Special Purpose Entity, which is a US LLC.

It is very difficult, if not improbable, to acquire liability insurance coverage for individuals serving as co-trustees as investment and/or distribution committee members and/or trust protector. Most are subject to a gross negligence standard; however, some insurance companies will provide coverage on a case-by-case basis to a Special Purpose Entity established specifically for these purposes, thus further protecting the trust protector and committee members. Such an entity would also provide legal continuity of its corporate existence by continuing without regard to any single individual’s death, disability, or resignation.

The entity typically has specific by-laws and allows for additional members to be added or removed so that the entity can continue along with the trust. These entities have to be properly structured to avoid estate tax inclusion issues.