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I'm having a very difficult time researching what exactly a trust is. Is a for-profit company with some additional agreements? Is it a not for profit?

If it's neither of the two, and is simply a signed agreement between 3 parties (Settlor, Benefeciary, Trustee) then who enforces it?

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  • Did you Google this? investopedia.com/articles/personal-finance/092115/… Jul 27, 2023 at 14:02
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    As with any other contracts - the courts enforce it.
    – littleadv
    Jul 27, 2023 at 15:37
  • Kind of helps, and I'm still very much confused. It almost sounds like an agreement signed between 3 people allows one not to pay tax on whatever money the trust generates. I don't understand how that's supposed to be tracked by the gov't.
    – Anton
    Jul 27, 2023 at 15:39
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    @Anton what makes you think it allows not to pay tax?
    – littleadv
    Jul 27, 2023 at 16:33
  • That's what I've been told.
    – Anton
    Jul 28, 2023 at 11:38

1 Answer 1

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Let's try to answer this really simply.

A trust is nothing more than a relationship. It occurs when one person, often called the settlor, gives property to another person—the trustee—to manage on behalf of still other people.

So to create a trust person A (Settlor) allocates some money etc. to person B (Trustee) ordering that person to manage it for the benefit of person C (Beneficiary). Documents are drawn up and agreed and signed by persons A and B. Person C does not have to agree or sign. All three parties can be multiple people or organizations.

There may be, and often are, conditions; e.g. Person C does not get the money until they are 18, or it can only be used for Person C's education, or the funds pass to someone else after a time.

The Trust is not a company. It doesn't have employees or shareholders.

The key here is that the money now does not belong to person A - they cannot use it or take it back, nor unilaterally change the way it is used. Nor does it belong to person C unless person B (acting on the documented instructions) gives it to them.

If B does not follow the terms of the trust they could never sued by either A or C.

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    Another way of describing trust that generally holds across common law countries (e.g., Canada, U.S., UK) is that it is a legal entity structure that bifurcates beneficial ownership from legal title and control. Typically, the beneficial owner of a company with a single shareholder aligns with the party that holds legal title and control of its shares; however, for some of the reasons that @DJClayworth outlined, sometimes there is reason to want to separate those two concepts. Despite the trustee controlling the trust, the trustee has a legal duty to act in the beneficiary's best interests.
    – user68318
    Jul 28, 2023 at 16:10

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