The main difference between private and public trust is that private trusts have definite and specific beneficiaries, whereas public trusts typically do not have specific individual beneficiaries.
A trust is a fiduciary relationship where one party (trustor) gives another party (trustee) the right to hold title to property or assets for the benefit of a third party (beneficiary). Establishing a trust provides legal protection for the trustor’s assets and ensures that the allocation of the assets happens according to the wishes of the trustor. In addition, it can save time, reduce paperwork, and even avoid inheritance or estate taxes. Terms like trust, trustors and trustees usually occur in legal and financial cases like insurance policies, bank accounts, and wills.
Key Areas Covered
1. What is Private Trust
– Definition, Features
2. What is Public Trust
– Definition, Features
3. Difference Between Private and Public Trust
– Comparison of Key Differences
Key Terms
Private Trust, Public Trust, Beneficiary, Trustor, Trustee
What is a Private Trust
A private trust is a trust established for the benefit of an individual or individuals and are enforceable by the beneficiaries. This type of trust is usually established for family members, relatives, friends, etc. In fact, one of the main features of private trusts is that it must have definite and specific beneficiaries. Furthermore, the creation of a private trust gives a transaction a legal form and ensures that assets or property is used only for the benefit of assigned beneficiaries and in the way the trustee wishes it to be handled.
Furthermore, there are three types of private trusts as revocable trust, irrevocable non-discretionary trust, and irrevocable discretionary trust. In a revocable trust, the settlor can easily change or terminate after its formation. In an irrevocable non-discretionary trust, it’s not possible to withdraw the assets, but the settlor has complete control over the trust; he can decide which beneficiary gets which assets and how much. An irrevocable discretionary trust, on the other hand, the trustee gets to decide which beneficiary gets which asset and how much. Moreover, the settlor decides the beneficiaries list alone.
What is a Public Trust
A public trust is an express trust for a public, religious, or charitable purpose. A public trust has a specific benevolent purpose. It usually provides for the benefit and needs of the beneficiaries. Although beneficiaries are specific and definite in the trust, it can include a wide range of people who fall within the parameters of the object and purpose of the trust.
Moreover, there are many regulations, inspections, checks and balances for the functioning and maintenance of public trusts. This is because public trusts are established for the benefit of a majority of people and it is imperative to ensure that the purpose for which the trust is set up is not diminished or destroyed. Therefore, trustees should always maintain effectiveness and transparency.
Difference Between Private and Public Trust
Definition
A private trust is a trust established for the benefit of an individual or individuals and are enforceable by the beneficiaries, while a public trust is an express trust created for a public, religious, or charitable purpose.
Beneficiaries
Moreover, private trusts have definite and specific individual beneficiaries while public trusts typically do not have specific individual beneficiaries.
Trustees
A public trust usually has a board of trustee, whereas a private trust has either a managing trustee or few appointed trustees.
Conclusion
A private trust is a trust for the benefit of an individual or individuals and is enforceable by the beneficiaries, while a public trust is an express trust for a public, religious, or charitable purpose. The main difference between private and public trust is that private trusts have definite and specific beneficiaries, whereas public trusts typically do not have specific individual beneficiaries.
Reference:
1.“Private Trust.” VakilSearch.
2. “Succession Planning: Understanding Public Trusts and Their Management.” Moneycontrol.
Image Courtesy:
1. “Chart of a trust” By Anja Bauer – Extracted from [1] (CC BY-SA 3.0) via Commons Wikimedia
2. “Contract, image quantity: 66” (CC0) via HippoPx
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