13 Types of Trusts
Education Savings Trust
It is both a financial and legal contract that makes it easier for families to carry out all financial transactions involving the education of one or all of their children. In this way, parents acquire a legal protection to keep the savings destined to the education of their children.
This trust involves operations such as:
- Changes of beneficiaries
- Cash withdrawals
- Cash contributions
Note: In most countries, contributions are tax exempt.
Storage Trust
This is a legal document used to guarantee the goods stored in the storage centres.
The trust is responsible for storing the goods and food until the date fixed in the contract.
Charitable Trust
This is set up for the purpose of financially supporting a charitable organisation. Here the trust administers the donations that were contributed by individuals, which will be used for charitable purposes. These donations are not only conditioned to money, but can also be property, furniture, services, among others.
Settlor's Trust
In this type of trust 3 actors come into play: the settlor, the trustee and the beneficiary.
The settlor creates the trust document, which establishes the transfer of assets to the trustee, then the trustee administers these assets for the benefit of the beneficiary.
Loan Guarantee Trust
To start with, an intermediary is needed, which must be neutral between two other actors: the lender and the borrower.
The objective is to secure a loan in this way: in an account called a trust, the trust deposits the borrowed funds, which are used as collateral for the loan; it then has to take care of making payments in a timely manner; this includes any required administrative arrangements such as signing of documents, payment of fees or taxes, as well as collecting payments from the lender and maintenance of the mortgage assets.
With this trust, the borrower assigns all of these tasks to the trust.
Tax Trust
This is virtually a legal structure that is typically used to establish a bookkeeping account that is used exclusively to pay the company's taxes.
By this means the trustee has the responsibility to execute the tax payments in a timely manner.
Among the most common taxes to be established are:
- Income taxes
- Value added taxes
- Wealth taxes
- Taxes on financial transactions
- Property taxes
- Excise taxes on production and services
- Consumption taxes
- Development taxes
It is also aimed at dividing the assets held by a taxpayer from his or her personal wealth and thus decreasing tax payments, which are commonly found in inheritance, income and estate taxes.
Real Estate Investment Trust
It is very popular in American countries, and consists of involving a group of investors so that they can buy and sell a number of real estate assets, which makes it easier for them to diversify without having to manage each acquired asset individually.
An important point to know is that the owner of the investment portfolio is not the investor, but a fiduciary entity.
Therefore, investors must first buy shares in the trust, which allows them to have a percentage share of the total portfolio.
Business Trust
This is one of the most popular trusts for SMEs, as one of the benefits is that it helps business owners to reduce interest rates on loans and can even save money at tax time.
An entity called a trustee is responsible for managing the company's assets. Common tasks include: distributing the assets to future heirs, protecting the business from default, managing the business in the event of the owner's incapacity, transferring the business to another person, and so on.
Successor Planning Trust
This trust provides for the settlor to appoint a trustee to administer the assets in accordance with the terms of the trust after the settlor's death.
This is an effective way to avoid legal disputes between the heirs, as the trustee is usually a person outside the heirs.
It is also a legal way to protect the estate of the heirs from any litigation between the parties involved.
Production Trust
It is used by investors, because it helps them to channel all their resources in projects that may correspond to:
- Agriculture
- Energy
- Mining
- Manufacturing
- Transport
The general tasks of the trust are:
- Advising investors
- Identifying opportunities
- Reporting on risks and returns
- Raising funds for project financing
- Managing and distributing the funds to stakeholders
- Structuring the project in all its stages and sub-stages
- Carrying out the start-up
- Monitor results
- Complying with the rules and regulations established in the country
Imagen from Testamentary Trust
Created to be included in a will, it details how the assets are to be distributed after the settlor's death.
Therefore, this trust is administered by a trustee, who must enforce the conditions described in the document so that everyone receives the estate as established by the settlor.
The testamentary trust has the legal ability to avoid costs associated with the probate process, delay the payment of assets, protect the estate from taxation, distribute assets to beneficiaries, etc.
Irrevocable Trust
In addition to fulfilling any of the characteristics of all the trusts described above, this one has the particularity that once created and signed by the interested parties, it cannot be modified or even revoked by the settlor.
Revocable Trust
Unlike the irrevocable trust, this one allows the settlor to modify, change or amend the trust document at any time. The most common changes are:
- Change beneficiaries
- Transferring assets to others
- Avoiding the inventory process
- Settling assets after the settlor's death
Example of a trust agreement
Trust Agreement
This Trust Agreement ("Agreement") is made and entered into on [Date], by and between [Grantor's Name] ("Grantor"), and [Trustee's Name] ("Trustee").
Creation of Trust
Grantor hereby creates a trust ("Trust") and transfers the property listed on Exhibit A to the Trustee, to be held and administered by Trustee in accordance with the terms and conditions set forth in this Agreement.
Purpose of Trust
The purpose of the Trust is to hold and manage the property transferred to it by the Grantor for the benefit of the beneficiaries named herein.
Trustee
Trustee agrees to serve as trustee of the Trust and to manage the Trust property in accordance with the terms of this Agreement.
Beneficiaries
The beneficiaries of the Trust are [Beneficiary's Name] ("Primary Beneficiary") and [Contingent Beneficiary's Name] ("Contingent Beneficiary"), who shall be entitled to receive the income and principal of the Trust in the manner and in the proportions set forth herein.
Powers of Trustee
Trustee shall have the following powers with respect to the Trust:
a. To invest and reinvest the Trust assets in such investments as Trustee deems advisable;
b. To collect, manage, and control the Trust assets, and to take all actions necessary or desirable for the protection, preservation, and growth of the Trust assets;
c. To make distributions of income and principal of the Trust to the beneficiaries in such amounts and at such times as Trustee deems advisable;
d. To engage and compensate attorneys, accountants, investment advisors, and other professionals as Trustee deems necessary or advisable; and
e. To do any and all other acts and things necessary or desirable for the proper administration of the Trust.
Termination of Trust
The Trust shall terminate upon the death of the Primary Beneficiary, at which time the remaining Trust assets shall be distributed to the Contingent Beneficiary.
Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the State of [State Name].
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
[Grantor's Signature]
[Trustee's Signature]