A trust is a company that acts as an asset manager (trustee) for another company. The activity of a trust is characterized by two characteristics:
A trust is an independent decision-maker.
A trust does not own the assets it manages.
In other words, one person passes ownership to a second person for the benefit of a third person. A trust is a legal arrangement whereby the settlor transfers his or her assets (real estate, dividends, savings, or other assets) to another person - the trustee - for use to the benefit of the beneficiaries (who may be either single individual or group). Trusts are often used to protect wealth and pass it on through generations.
Although generally directed by the beneficiary, a trust is ultimately an independent decision maker. A trust acts in accordance with the rules and regulations set out in the relevant agreements and aims to achieve the best outcomes for the beneficiaries. However, the strategy for achieving these results is determined by the Trust itself. The scope of these activities is practically unlimited and ranges from investment to donation to the sale of an estate.
Functions of a trust
The main function of a trust is to manage assets on behalf of their owner for the benefit of beneficiaries. To this end, a trust may choose any activity it deems effective and beneficial, unless the relevant contract provides otherwise. Some of the functions of a trust include:
Management of Investments
Creation of financial reports
In addition, a trust can perform almost any other contractually specified administrative function. Depending on the individual case, they also offer financial planning, tax optimization and similar services.
Trusts can be useful for anyone who has significant assets. Trusts are usually established to secure property and wealth, as well as to optimize taxation. They also have inheritance applications: trust assets do not require a will as they are no longer part of the trustor's estate and are therefore unaffected by the contents of his or her will.
Benefits and characteristics of trusts
Aside from the specific purposes that trusts can be used for, there are some common benefits that apply to all types of trusts:
Anonymity. In most countries, the contents of wills and the names of the owners of property or other assets are publicly available. The names of the trust's beneficiaries usually remain unknown, and therefore using a trust to hold property or distribute assets allows you to maintain your privacy.
income suppression. The ability to transfer all real estate and assets to the trust allows you to declare insufficient availability of private assets and, for example, apply for a lower tax rate.
tax avoidance. In many offshore jurisdictions, trustees are not required to report trust income to the tax authorities of the country where the beneficiaries reside.
charity. In some countries all assets given to a charity must be held under a trust.
capital protection. Trusts can be used to protect the beneficiaries (such as the trustor's children) from their own inability to manage the funds. The terms of the trust may impose limits on the use of the money or the age at which the beneficiaries acquire the power of disposal and exploitation.