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CHAPTER II.

THE FUNCTIONS OF TRUST COMPANIES.

HE trust company of today performs a great variety of functions, some of which are peculiar to itself, while many are undertaken by other financial institutions. The most distinctive function of the trust company is undoubtedly that of acting as trustee for various purposes. Historically, this was the first kind of business, aside from insurance, that trust companies were authorized to undertake, and the legislation of those States that have laws on the subject indicates that the lawmakers had in mind such business as affording the essential reason for the chartering of these companies. With hardly an exception, the granting of other powers seems to have been intended by the framers of the laws as merely incidental to or helpful in the carrying out of duties as trustee.

The same intention is evident in the name "trust company”—i. e., a company organized to accept and execute trusts. Webster defines a trust as "something committed to a person's care for use or management, and for which an account must be rendered." Blackstone defines it as meaning, in law, "an estate devised or granted in confidence that the devisee or grantee shall convey it, or dispose of the profits, at the will of or for the benefit of another; an estate held for the use of another." A trustee is a person or corporation to whom a trust is committed. With this in mind, it is not difficult to understand the theory of the trust company-simply a corporation empowered to undertake those special trusts of a business nature that men are apt to commit to others. This is the original and essential mission of the trust company.

Experience has demonstrated, however, that for the proper execution of such trusts the company is under the necessity of carrying on other lines of business which increase its usefulness as a trustee. Thus one function after another has been added, until today the trust company undertakes a great number and variety of duties which justify the descriptive name that has been applied to it of "the department store of finance."

Because of this diversity of functions, trust companies usually carry on their work in departments, the most common division being a threefold one-into banking, trust and safe-deposit departments. Often the banking department is subdivided into the savings and the commercial banking departments, and the trust department into two parts, of which one is devoted to trust business for corporations, and the other to trust business for individuals. The largest companies frequently have other departments than these, sometimes because the volume of business makes a further division advantageous, and sometimes because other lines of business are included. Among the other departments sometimes found are

the bond (or investment) department; the mortgage department; the transfer (or registration) department; the real-estate department; the reorganization department; the title-insurance and the fidelity insurance departments. Most companies make some special provisions for women, and some have a special woman's department.

If the word trustee be taken in its widest meaning, the greater part of the functions of the trust company might be included in a description of its duties as trustee. There are certain forms of trustee work, however, which occur so frequently that they have come to be referred to by special names, and it will be convenient to consider the various functions in the following groups:

Business as trustee or agent for individuals, under private agreement. Probate business.

Investment business.

Real estate business.

Insolvency business.

Business as trustee or agent for corporations.

Business as transfer agent and registrar for corporations.

Corporation reorganization and financing.

Fidelity insurance and title insurance.

Safe-deposit business.

Savings and banking business.

Miscellaneous.

NATURE AND VARIETY OF INDIVIDUAL TRUSTS.

The number and variety of trusts undertaken for individuals under private agreement are very great, and new forms of such trusts are being constantly created. They come from many different classes of people from active business men who have some special matters that they do not care to handle for themselves; from teachers, artists, doctors, clergymen, women and others who feel that their inexperience or lack of time makes it wise to shift financial affairs to other shoulders; from persons whose poor health requires that they live in other climates and leave their business cares behind; from absentee property owners; from the aged, either too feeble to attend to active business or willing to take a well-earned rest; from persons planning to spend some time in travel and who must have a responsible agent to look after their affairs while away; and from others who, either from choice or from necessity, wish to avoid the care of their property either temporarily or permanently.

In such cases the trust company takes entire charge of the property, whether real or personal, or both, just as an individual acting in like capacity would do. It collects interest, coupons, dividends, annuities, pensions, and any other form of income, notes, accounts, bonds, mortgages, land contracts, etc.; if part of the property be real estate, it

looks after repairs and improvements, sees that the property is kept rented, keeps up insurance, pays taxes, collects rents; it acts as attorney in fact, executes contracts, leases, deeds, etc. It remits or accumulates the income, reinvests the principal, according to the terms of the con

tract.

Married women place their separate estates in the hands of the company, either giving it the sole management or retaining such degree of control as they see fit.

It often happens that men wish to provide for wife or children or other dependents a fund which shall be beyond the reach of their creditors and safe from any unforeseen calamities that might befall the donor's estate, so that the beneficiaries may be assured of an income in any event. For such purposes they convey sufficient property to the trust company as trustee, with a definite contract as to the disposition to be made of the principal and income of same.

Similar trusts may be created in favor of benevolent or educational institutions or others to whom the donor wishes to give the income only of an endowment, without placing the latter under the control of the beneficiary. The trust company receives such funds, invests or reinvests the same from time to time as it becomes necessary, and applies the income as directed in the deed of trust.

Trusts may be created for the benefit of one making the trust, either subject to his revocation at any time, or beyond his control. The young or inexperienced sometimes inherit estates, and suddenly find themselves in situations needing experience and wisdom beyond that which they possess. Occasionally persons in active business life find themselves disqualified through accident, sickness or other cause from caring for their business, and turn it over to the trust company.

Persons whose incomes are received at long intervals or at uncertain times may arrange with the trust company to have the income paid to them in equal monthly installments. If the security is ample, the company will sometimes make temporary advances if necessary.

Trust companies are sometimes called upon to act as agents for the payment of such regularly recurring items as premiums on insurance, taxes, etc. In some instances they have undertaken to care for burial lots and graves.

Persons who are to be away for a considerable time appoint the company custodian of valuable papers and securities. This function is of much greater importance than mere safe-keeping. While the owner is

away, it may be of the greatest importance to get at the papers. Bonds may be called for redemption, the owner may wish to place the securities as collateral for a loan, coupons may become due, and the owner need the money for them.

Some trust companies do a considerable business in the handling of escrows. They act as temporary trustees of papers, money or other property placed in their hands by one party to be given to a second

party upon the performance of a contract, the payment of a certain sum in money or the fulfillment of some other provision determined by the parties to the agreement.

Sometimes estates which have been improvidently managed are placed in the hands of trust companies in the hope that they may be freed from incumbrances and put upon an income-producing basis. In some notable cases the superior facilities of trust companies have enabled them to preserve and make valuable estates that would have been worthless in the hands of the owners.

A new field of business is now being taken up by the trust companies, in the form of trust agreements relating to life insurance. The policies are made payable, or assigned, to the trust company as trustee, and at the death of the assured the company collects the proceeds of the policies, of which it has meantime been the custodian, and applies such proceeds according to the trust agreement. Many insurance companies do not write policies allowing stated payments to beneficiaries, and this plan therefore furnishes the opportunity not otherwise open for the insured to have such disposition made of the proceeds of his insurance.

Trust agreements are also made by which beneficiaries may be paid stated annuities out of the proceeds of life-insurance policies. This arrangement is specially valuable where a man is not able to carry an amount of insurance such that the income alone will support the family. The trust company can so invest the proceeds that a small portion of the principal may be used each year while the balance is kept profitably invested. The fund may thus be made to provide a sufficient income during the probable life of the widow or during the minority of the children. One of the leading companies of the central States advertises that by this plan it is possible to pay an annuity of $500 for forty years out of $10,000 insurance, of $1,000 for forty years out of $20,000 insurance,

etc.

It is customary in appointing the trust company trustee to have the fees of the company made a part of the contract, and it may thus be known in advance just how much the expense will be.

While the trust company is a corporation, it has usually succeeded on account of its wide powers and the character of the men in control in maintaining a degree of personality which adds to its attractiveness to customers. The confidential nature of many of its duties brings it into close touch with those whose affairs it handles.

It is customary for trust companies to keep all trust funds entirely separate from their general assets; and, indeed, this is required by law in many States. This means that in case of the failure of the company the funds belonging to a particular trust cannot be mingled with the general assets of the company nor levied upon in any way by the creditors of the company. In addition to this, the trust becomes, in case'its funds are not intact, a creditor of the company, protected as are its other creditors by its general assets. Trust funds are thus doubly safeguarded.

Securities and other property held in trust stand in the name of the company as trustee (etc.) for So-and-so, and thus show on their face that they are not the property of the company.

PROBATE BUSINESS.

The statutes of many States give to trust companies the power to accept and execute duties entrusted to them by will or by appointment of court as administrator, etc. In such capacities the company has the same powers and duties that an individual would have if acting in the same capacity. The manifest advantages which the trust company has over an individual for the performance of such trusts are steadily drawing to it a large portion of this business; and it is safe to prophesy that it will ultimately become the usual practice to entrust the execution of wills and the administration of the estates of the dead to trust companies rather than to individuals.

Business of this kind includes services as executor, administrator, trustee, guardian, committee, conservator.

An executor is a person appointed by the testator in his will to take charge of his estate and dispose of it as directed in the will.

An administrator is an officer appointed by the court having such jurisdiction in the several States to take charge of the estate of one who dies without leaving a will, and to dispose of the same in accordance with the inheritance laws of the State.

An administrator-with-the-will-annexed is appointed by the court to take charge of the estate of a deceased person when no executor has been named in the will, or when the executor named refuses to act or dies.

Acting in any one of these capacities, the trust company assumes entire charge of the estate, subject to the supervision of the court, and after a period varying in the several States, but usually eighteen or twentyfour months, makes a final distribution, according to the terms of the will or the laws of inheritance, as the case may be, and files with the proper public official an itemized statement of all receipts and expenditures under the trust. In winding up the affairs of an estate, the executor or administrator frequently finds it necessary to turn a portion of it over to a trustee appointed to manage it for the beneficiaries or to a guardian appointed to look after the estates (and in some States the persons) of heirs who are minors, or to a committee or conservator appointed to have charge of an estate for heirs who are insane, idiots, habitual drunkards, spendthrifts or incapable for any reason of looking after their own affairs. In any of these capacities the trust companies may act, and it often happens that a given company acting as executor turns over a part of the estate to itself as trustee, guardian, etc., thus gaining for the estate the advantage of continuous management by the same trustee. It may also receive such trusts from other executors or administrators, whether individuals or trust companies.