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About Trust Companies
At one time or another, almost everyone has had the desire to start a business. There is just something fascinating and magical about creating your own company, being your own boss and making decisions and earning lots of money. Although not everyone is destined to follow that dream, there are many people that will actually make the leap, leave their steady, yet boring jobs behind and are ready to explore the exciting world of trade.
Before starting a business there are a few things to consider. You will need a unique business name, a sound financial plan and you will need to decide on a business structure. Will you be the sole proprietor, finance a partnership, or will you have a company with directors, secretaries and members? If none of these options seem appealing, you can always start a trust company.
A trust company is a corporation authorized to act in a fiduciary capacity, or as a trustee – an organization or individual managing financial assets on behalf of someone else; dead or alive. A rather involved business structure, trust companies are generally owned by an independent partnership, a bank or a law firm. These institutions are usually familiar with managing estates and the different types of trusts.
A trustee is legally obligated to make trust-related decisions, such as managing investments, record keeping, and supervising various assets. Depending on the nature of the trust, the trustee may also be trusted to pay bills, medical expenses, donate to charities, pay out inheritances, or other distributions of income. The trustee may also be liable for damages which may occur due to management failure.
There are two main trust categories:
- Unit trust –This is a form of pooled investment, in which a professional manager will invest the collective funds on behalf of a group of investors, also known as Beneficiaries or Unitholders). These open-ended investments open the door to a wide range of redeemable securities.
The distribution of the net trust income is calculated and distributed amongst the Unitholders in proportion to the number of units held.
- Discretionary trust – In this type of trust the entitlements to the trust fund are not fixed and the trustee decides how much is appropriate to pay the beneficiary from the trust income. Discretionary trusts often hold family assets and rely on good faith.
There are, of course, other types of trust systems, each with their own set of rules. Constructive, fixed or express trusts, private or
public trust, and charitable trust are only a few examples. The hybrid trust is quite popular. It is a combination of elements taken from both fixed and discretionary trusts.
Setting up a trust company, appointing a trustee, and deciding on the distribution of income and capital can be tricky for a new entrepreneur. These are important matters that should be concluded with the help of professional corporate consultants, experts who are familiar with applications and registration forms, or declarations of trust. They may even be helpful in other business matters, such as secretarial assistance and be able to refer you to reputable accountants andlawyers for additional advice. Their extended services are worthwhile the expense as, in the end, you will know your trust company is set up right.
This excerpt is from an open source article and is not necessarily reflect the views of bostatic.com
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