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20-425: A trust company is a company that specializes in the creation and administration of legal arrangements known as trusts. It can also refer to: Trust company The "trust" name refers to the ability to act as a trustee – someone who administers financial assets on behalf of another. The assets are typically held in the form of a trust , a legal instrument that spells out who the beneficiaries are and what

40-406: A debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond , loan stock or note . A debenture is thus like a certificate of loan or a loan bond evidencing

60-599: A "near"-bank status which situates them legally very close to the US savings and loan associations , UK building societies or other non-bank deposit-taking institutions such as credit unions . According to the Canadian Office of the Superintendent of Financial Institutions , "trust and loan companies are financial institutions that operate under either provincial or federal legislation and conduct activities similar to those of

80-498: A bank". Deposits and GICs are insured by the Canadian Deposit Insurance Corporation in the same manner as bank deposits. While Canadian trust and loan companies nominally cannot accept retail deposits or issue debentures , they may receive money on deposit in trust, repayable on demand or after notice. As no statute prevents the companies from according chequing privileges to their depositors, effectively

100-400: A creditor may turn their bonds into equity in the company if it does well. Companies also reserve the right to call their bonds, which mean they can call it sooner than the maturity date. Often there is a clause in the contract that allows this; for example, if a bond issuer wishes to rebook a 30-year bond at the 25th year, they must pay a premium. If a bond is called, it means that less interest

120-499: Is paid out. Failure to pay a bond effectively means bankruptcy. Bondholders who have not received their interest can throw an offending company into bankruptcy, or seize its assets if that is stipulated in the contract. In the United States , debenture refers specifically to an unsecured corporate bond, i.e. a bond that does not have a certain line of income or piece of property or equipment to guarantee repayment of principal upon

140-664: The Equitable Trust Company , B2B Trust and Civil Service Loan Corporation , have restructured to legally become federally-regulated banks. Unlike banks, Canadian trust companies can administer estates, trusts, and pension plans. Banks cannot conduct these activities unless they are done through a separately created trust subsidiary. In 2023, there were 43 federally-regulated trust companies in Canada but many of these were owned or controlled by banks or other institutions as subsidiaries . Debenture In corporate finance ,

160-462: The agreement). There are also other features that minimize risk, such as a "sinking fund", which means that the debtor must pay some of the value of the bond after a specified period of time. This decreases risk for the creditors, as a hedge against inflation, bankruptcy, or other risk factors. A sinking fund makes the bond less risky, and therefore gives it a smaller "coupon" (or interest payment). There are also options for "convertibility", which means

180-498: The bond's maturity . Where security is provided for loan stocks or bonds in the US, they are termed "mortgage bonds". In the United Kingdom a debenture is usually secured. In Canada, a debenture refers to a secured loan instrument where security is generally over the debtor's credit, but security is not pledged to specific assets. Like other secured debts, the debenture gives the debtor priority status over unsecured creditors in

200-417: The bondholders), and is the entity which monitors the company to ensure it is meeting covenants. In the event of the company's bankruptcy, the corporate trust company represents the interests of the bondholders and acts to recover as much of the loan proceeds as possible. In Canada, trust companies have historically provided many of the same services as the big-five banks . They are legally not banks, but hold

220-430: The company monthly, and monitors the financial conditions of the company to ensure that it is meeting all its agreed upon conditions (for example, that its ratio of profits to expenses stays above a certain amount). However most large companies borrow money not from banks, but by selling bonds. When the company sells bonds, a corporate trust company can handle the acceptance of payments from the company (which it passes on to

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240-470: The company's general meetings of shareholders , but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against profit in the company's financial statements . The term "debenture" is more descriptive than definitive. An exact and all-encompassing definition for a debenture has proved elusive. The English commercial judge, Lord Lindley , notably remarked in one case: "Now, what

260-433: The company's liability to pay a specified amount with interest. Although the money raised by the debentures becomes a part of the company's capital structure , it does not become share capital . Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories. Debentures are freely transferable by the debenture holder. Debenture holders have no rights to vote in

280-404: The correct meaning of 'debenture' is I do not know. I do not find anywhere any precise definition of it. We know that there are various kinds of instruments commonly called debentures." Debentures gave rise to the idea of the rich "clipping their coupons", which means that a bondholder will present their "coupon" to the bank and receive a payment each quarter (or in whatever period is specified in

300-546: The estate of a deceased person include collecting debts , settling claims for debt and taxes , accounting for assets to the courts and distributing wealth to beneficiaries. Estate planning is usually also offered to allow clients to structure their affairs so as to minimize inheritance taxes and probate costs. In the United States, one of the primary profit centers for a trust company is commissions earned from selling various types of insurance products designed to minimize

320-740: The estate tax charged to a person. A trust officer may provide guardian and conservator services, acting as guardian of a minor's property until adulthood or as conservator of the estate of an adult unable to handle his or her own finances. Some trust companies are formed not merely for the benefit of a minor or an individual trustee, but for the preservation of nature or historic sites. A trust department provides investment management, including securities market advice, investment strategy and portfolio management , management of real estate and safekeeping of valuables. The trust company may also provide escrow services, invest education or retirement funds or hold 1031 Exchange proceeds where cash from

340-449: The major banks. Prominent examples include Canada Trust (founded 1864 as Huron and Erie Savings and Loan Society, acquired by Toronto-Dominion Bank in 2000), Montreal Trust Company (established 1889, acquired by Scotiabank in 1994), National Trust Company (established 1898, acquired by Scotiabank in 1997) and Royal Trust (founded 1892, bought by Royal Bank of Canada in 1993). A few small or captive trust and loan companies, such as

360-424: The money can be spent for. A trustee will manage investments, keep records, manage assets, prepare court accounting, pay bills (depending on the nature of the trust), medical expenses, charitable gifts, inheritances or other distributions of income and principal. A trust company can be named as an executor or personal representative in a last will and testament . The responsibilities of an executor in settling

380-442: The sale of US real estate is held in trust (for tax purposes) until used to buy replacement land. Trust companies may also perform corporate trust services. Corporate trust services are services which assist, in the fiduciary capacity, in the administration of the corporation's debt. For example, in a normal bank loan, the lender normally lends money to the company (usually with conditions called " covenants "), accepts payments from

400-472: The trust companies are at liberty to receive monies which the depositor can treat much like bank savings or chequing accounts. The institution may then employ these assets (less a legally-required fractional reserve ) to issue secured loans , such as mortgages . Once a common feature on Canada's retail banking landscape, free-standing retail trust companies are disappearing; the largest institutions have increasingly fallen prey to consolidation and takeover by

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