Godly Trust? Why investors need to clearly understand the difference between Trust and REIT

If you’ve ever heard the term “Trust” (Trust) but aren’t sure what it is or confuse it with REITs or general funds, you’re not alone. Many people think they are the same, but in reality, they are quite different. Today, we’ll decode Trust in an easy-to-understand way and clearly distinguish the differences so you can make smarter investment decisions.

What is a Trust? Getting to Know Asset Management Tools

A Trust, in simple terms, is an asset management system that uses legal procedures, with individuals or institutions called “Trustees” (Trustee) responsible for managing assets transferred by the owner.

The trustee will act according to the owner’s intentions and collect income from managing those assets, then pay benefits to the beneficiaries (Beneficiary) as specified in the agreement.

Assets managed within a trust can be diverse, including cash, real estate, stocks, bonds, businesses, art, debts, and other income-generating assets.

Simply put, a Trust is a system or tool designed for managers to collect benefits from assets and pass them on to beneficiaries.

Why Are Trusts Beneficial? 5 Main Reasons

1. Distribute benefits without transferring ownership

Trusts allow asset owners to provide benefits to others without transferring ownership rights. This method was originally used for estate management but has since been adopted for investments.

2. Managed according to a set plan

When establishing a trust, the owner must specify how the assets should be managed. The trustee is bound to follow this intent strictly, with no deviations.

3. Potential tax benefits

Setting up a trust does not constitute transferring assets to others but merely granting rights to benefits. This can offer tax advantages depending on the country’s laws.

4. Professional management

If the owner is ill or unable to manage assets, a Revocable Trust (Revocable Trust) allows professional management. When the owner recovers, they can revoke the trust and manage assets themselves.

5. Flexibility in operation

A trust is merely an agreement between individuals, unlike funds that require registration and approval from authorities. This makes establishing and modifying trusts more flexible.

How Many Types of Trusts Are There? Divided by Function

Trusts can be categorized in various ways. For example, based on revocability:

Revocable Trust (Revocable Trust) - The owner can cancel or modify it at any time.

Irrevocable Trust (Irrevocable Trust) - Once established, it cannot be canceled.

Based on specific purposes:

• Asset protection trusts
• Blind Trust (Blind Trust)
• Charitable trusts
• Dynasty trusts
• Tax benefit trusts
• Real estate trusts
• Marital trusts
• Special needs trusts

Who Are the Main Characters in the Trust Game?

Once you understand the benefits and types, you should know the key players involved:

Founder (Settlor)

The original asset owner. When signing the trust agreement, they remain the owner but cannot use or manage the assets transferred to the trust.

Manager (Trustee)

Has no personal stake but is responsible for managing the assets according to the agreement and can charge management fees.

Beneficiary (Beneficiary)

The person who receives benefits. If the trustee breaches their duties, the beneficiary can claim damages and recover the assets.

Four Essential Elements to Successfully Establish a Trust

To make a trust valid, the form must include four parts:

1. Clear Intent - The trust agreement must be explicitly written, with no ambiguous interpretations.

2. Certainty of Assets - Clearly identify what assets are involved, where they are located, and how they can be managed.

3. Certainty of Beneficiaries - There must be definite individuals who will benefit, not missing or deceased persons.

4. Feasibility - The assets managed must be capable of generating income in reality.

Trust vs REIT vs Funds: What’s the Difference?

In investment, large assets are managed in three ways. Sometimes they seem similar but are actually different:

How do Trust and REIT differ?

REIT (Real Estate Investment Trust) is a type of trust, but only for real estate.

Similarities: Both regular trusts and REITs are not legal entities; they are established by trust agreements, and their management methods are similar.

Differences: Trusts can manage various types of assets, but REITs are limited to real estate.

How do Trusts and Funds differ?

Funds (Fund) pool money from many investors to invest according to their objectives and distribute dividends.

Differences:

• Funds are legal entities; trusts are not.
• Trusts are established by contracts; funds require registration and approval.
• Management methods differ.

What Types of Trusts Are Available in Thailand?

Thailand permits trusts only for raising capital in the capital market, with two types:

Active Trust ( (Management of operating funds)

Established to generate income from assets:

• Trusts for large institutional investors )II/HNW Trust Fund(
• REITs

) Passive Trust ### (Asset holding) Established to manage assets for other purposes:

• ESOP (Employee Stock Ownership Plan)
• EJIP (Joint Investment in Employment)
• Sinking Funds for debt repayment

Therefore, REITs are a type of trust, but not all trusts are REITs. Currently, most trust assets in Thailand are REITs because they are easier to verify, trade, and accessible even for beginners.

Summing Up Clearly

Trust (Trust) is a legal asset management tool, originally used for estate management but now applied to various asset types.

If the trust manages real estate, it is called a REIT. The trustee manages and earns income, then pays dividends to unit holders.

Trusts are a good option for investors who want to invest in large assets but lack enough capital to buy them outright.