Trust (Trust) that investors need to know: Is it similar to or different from REITs and real funds?

What is a Trust Exactly

In the investment industry, the term Trust (Trust) is a frequently heard term, but many people still do not fully understand what a trust actually entails and why it is important.

From a legal and management perspective, a trust (Trust) is a tool for managing assets with a middle party, called a trustee (Trustee), who helps administer the assets. The trustee receives the transferred assets from the owner and manages them according to the contract and the owner’s intentions. Once profits are generated, they are distributed back to the beneficiaries (Beneficiary) as agreed.

The assets managed within a trust can be of various types: capital, real estate, stocks, bonds, businesses, art, liabilities, or other assets that can generate returns.

Who Are the Parties Involved in a Trust

Establishing a trust requires three parties:

First: The Settlor (Settlor) is the owner of the initial assets who transfers them into the trust. They retain ownership rights but cannot benefit from or control the assets once transferred.

Second: The Trustee (Trustee) is responsible for managing the assets according to the agreement. They have no stake in the profits but can charge fees for management or administration.

Third: The Beneficiary (Beneficiary) is the person who receives benefits from the trust according to the contract. They have the right to claim damages if the trustee manages improperly, and they can also request the return of the assets.

A Trust Must Have Three Elements to Be Legally Valid

To establish a legally compliant trust, the following are necessary:

First: Certainty of Intent (Certainty of Word) The trust agreement must clearly specify the intentions between the settlor and the trustee without ambiguity.

Second: Certainty of Subject Matter (Certainty of Subject Matter) The assets involved must be real, clear, and manageable to generate benefits.

Third: Certainty of Object (Certainty of Object) There must be a definite person who will benefit and can actually receive the benefits (not a missing or deceased person).

Types of Trusts: Various Categories

Trusts are divided into many types based on conditions and objectives:

Revocable Trust (Revocable Trust) can be changed or canceled at any time. Suitable for those who want flexibility in management.

Irrevocable Trust (Irrevocable Trust) cannot be altered once established, offering greater protection and tax benefits.

Additionally, there are other types such as Asset Protection Trust (Asset Protection Trust), Blind Trust (Blind Trust), Charitable Trust (Charitable Trust), Generation-Skipping Trust (Generation-Skipping Trust), Grantor Retained Annuity Trust (Grantor Retained Annuity Trust), Land or Real Estate Trust (Land or Real Estate Trust), Marital Trust (Marital Trust), and Special Needs Trust (Special Needs Trust).

Trust vs REIT: What’s the Difference

REIT (Real Estate Investment Trust) is a type of trust established specifically to manage benefits from real estate.

In terms of similarities, both trusts and REITs are not legal entities and are established through trust agreements.

The main difference is that a trust can manage various types of assets, while a REIT is limited to real estate. You could say, “All trusts that manage real estate are REITs,” but “not all REITs are trusts of a single type.”

Trust vs Fund: The Key Differences Affecting Investors

A mutual fund (Fund) is another asset management tool, but it differs clearly from a trust.

A fund pools money from many investors and invests according to its objectives. Returns are paid out as dividends to unit holders.

Two main differences:

First, legal status: Funds are legal entities, whereas trusts are not.

Second, establishment process: Funds must register and obtain approval from relevant authorities, while trusts are civil contracts with more flexibility.

Benefits of Trusts

Why do many people prefer using trusts? One reason is the numerous benefits they offer.

Trusts allow for distributing benefits to others without transferring ownership of assets. Originally used for estate management, trusts have been adapted for investment purposes.

Trusts also enable precise management according to the owner’s intentions because the contract must explicitly state the intentions.

Additionally, trusts may offer tax advantages since they are not directly involved in asset transfer. Setting up a trust can provide tax benefits under the laws of each country.

Revocable trusts are especially useful if the owner becomes ill or incapacitated. Professional managers can oversee the assets, and once the owner recovers, the trust can be revoked.

The History of Trusts

The concept of trusts dates back to Roman times, where they were used for estate planning. In medieval England, trusts began to be used for the assets of living persons.

Particularly among nobles going to war, they often entrusted land to trusted individuals to manage benefits and pass them on to their families. The establishment of trusts was based on trust and contracts, a system still in use today.

Types of Trusts Available for Investment in Thailand

In Thailand, the Securities and Exchange Commission issues regulations allowing the establishment of trusts solely for fundraising in the capital markets, with two types:

First: Active Trust (Active Trust) established to manage assets for profit growth, such as institutional and high-net-worth investor trusts (II/HNW Trust Fund) or real estate investment trusts (REIT).

Second: Passive Trust (Passive Trust) established to hold assets for a specific benefit, such as employee stock ownership plans (ESOP), employer-employee joint investment trusts (EJIP), or for reserve accounts (Reserve Account), sinking funds (Sinking Fund) for bond repayment.

Currently, most trusts established in Thailand are real estate investment trusts or REITs, making it accessible mainly through REITs for the general investors.

What You Gain from Understanding Trusts

Trusts are not as complicated as many think. They are simply tools for asset management designed to allow owners to distribute benefits to others in an organized and secure manner.

Although originally created for estate management, today trusts can be used to manage almost all types of assets. If the trust manages real estate assets, it is called a REIT. When the trustee generates returns, they are paid as dividends to unit holders.

Therefore, trusts are an alternative option for investors seeking access to large assets without sufficient capital to invest directly. Understanding trusts is a fundamental step toward making smart investment decisions.