A trust fund is an asset management tool that investors should know about, but how much do you know about REITs?

Have you ever heard the term “Trust” (Trust) in analyst or investment advisor messages? Sometimes it appears as “Trust Fund,” sometimes called REIT, or even “Fund,” even though in reality they may not be exactly the same. This article will help you understand what Trust Funds are really and how they differ from REITs and mutual funds.

How Trusts Originated: An Ancient Roman Tale

Before discussing what a trust is, let’s briefly understand its history. The concept of trusts dates back to ancient Rome, where they were used to manage wills. Even in medieval England, wealthy landowners and nobles used trusts not only for estate planning but also to manage assets during their lifetime.

For example, a noble going abroad to fight would entrust his land to a trusted person to manage and collect benefits from it, then pass it on to his family later. This is the same core idea of trusts still used today.

What is a (Trust)? The Actual Tool for Asset Management via Contract

To clarify, what is a Trust Fund?

A trust is a legal mechanism used to manage and oversee assets. A person called the “Trustee” (Trustee) receives assets from the owner and manages them according to the owner’s wishes, ultimately paying benefits to individuals called “Beneficiaries” (Beneficiary).

Assets managed can include cash, real estate, stocks, bonds, businesses, artworks, debts, and other income-generating items.

Simply put, a trust is a unit of asset management designed to operate the owner’s assets and distribute income to third parties.

Three Main Points for Proper Trust Establishment

Setting up a Trust Fund successfully is not easy; it requires three clear components:

1. Certainty of Intent (Certainty of Word)
A clear trust agreement must specify the intent between the asset owner and the trustee (Trustee) regarding how the assets should be managed.

2. Certainty of the Subject Matter (Certainty of Subject Matter)
The trust assets must be clearly identified, existing, and there must be a clear plan for how they will generate benefits.

3. Certainty of the Beneficiaries (Certainty of Object)
The beneficiaries must be clearly identified, be real living persons, and not be lost or ambiguous.

Who Are the Parties Involved in a Trust?

Establishing a trust involves at least three parties:

Settlor / Founder
The individual who owns the original assets. Upon signing the trust agreement, they still retain ownership rights but cannot directly benefit from or manage the assets anymore.

Trustee / Manager
A professional who manages the trust assets according to the agreement. They do not have rights to the benefits but can charge management fees.

Beneficiary
The person who receives benefits from the trust. They can claim if the trustee manages the assets improperly and have the right to request the return of the assets.

Five Major Benefits of Setting Up a Trust

1. Distribute benefits to others without transferring ownership
The owner does not need to transfer the actual assets but can pass income benefits to third parties. Originally used for estate management, now adapted for investment.

2. Control over asset use as desired
Because the intent must be clearly specified, the trustee must follow it, ensuring asset management aligns with the owner’s wishes.

3. Potential tax advantages
Since assets are not actually transferred but benefits are passed, some countries allow tax benefits.

4. Assistance during owner’s illness or incapacity
If the trust is revocable, it can help manage assets if the owner is temporarily ill or incapacitated, and benefits can be returned when the owner recovers.

5. High flexibility
As a contractual agreement among involved parties, setting up and modifying a trust is easier and does not require formal registration like typical funds.

Types of Trusts Based on Revocability

Revocable Trust (Revocable Trust)
The owner can cancel or modify at will.

Irrevocable Trust (Irrevocable Trust)
Once established, it cannot be changed; must follow the original terms.

Other types include:

• Generation-Skipping Trust (Generation-Skipping Trust)
• Charitable Trust (Charitable Trust)
• Asset Protection Trust (Asset Protection Trust)
• Marital Trust (Marital Trust)
• Special Needs Trust (Special Needs Trust)

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

Trust vs REIT

REIT (Real Estate Investment Trust), which you see on stock markets, is a type of trust. However, it is limited to managing real estate only.

Similarities: Both have no legal personality and are established via contracts.

Differences: General trusts can manage various assets, while REITs are restricted to real estate.

In simple terms, REIT is a trust, but not all trusts are REITs.

Trust vs Mutual Funds (Fund)

Mutual funds are legal entities with registration and licensing from authorities. They pool investors’ money to invest according to their objectives and pay dividends.

Differences:

• Mutual funds = legal entities, require registration
• Trusts = no legal personality, are just contracts

What Trusts Are Available for Investment in Thailand?

Trusts are permitted in Thailand solely for raising capital in the stock market. The Securities and Exchange Commission authorizes two types:

1. Active Trusts (Active Trust)
Established to manage assets for growth, such as:

• Institutional and high-net-worth investor trusts (II/HNW Trust Fund)
• Real estate investment trusts (REITs) (REIT)

2. Passive Trusts (Passive Trust)
Established to hold assets or for debt servicing, such as:

• Employee stock ownership plans (ESOP) (ESOP)
• Employer-employee joint investment trusts (EJIP)
• Sinking funds for bond redemption (Sinking Fund)

Currently, most Thai trusts are REITs or real estate investment trusts, leading investors to associate trusts mainly with REITs. The advantage is that assets are easily verifiable, making it accessible even for beginners.

Summary: Trusts are REITs, but not all REITs are trusts

What is a (Trust)? Simply put, it is a tool for managing assets, dating back to ancient Rome, used for estate management and later adapted for investment.

Trust Funds are a form of asset management where assets are managed and benefits are distributed to unit holders.

If a trust manages only real estate, it becomes a REIT listed on the stock exchange.

Thailand permits trusts solely for capital raising in the stock market, mostly REITs, because assets are easier to verify, allowing even novice investors to buy and sell.

This offers a new option for those wanting to invest in large assets without a large initial capital—by purchasing just a few units, they can share in the assets’ benefits.