Income Trusts

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An income trust is just as the name says, it is a fund that holds certain income profits. By listing property in the income trust, the property is better secured than it would be without the trust. The stocks accumulated through income trusts are listed on the local stock exchange and are considered a normal stock. The profits accumulated through the stock listing is then passed on to the receivers of the trust, also called the beneficiaries. The profit is given to them in distributions which is a much higher value than stock dividends.

An income trust can accumulate interest, receive capital gains, or payments from a business lease. Besides the fact that there are tax benefits to the trust fund, many open the account because of the continuous payments to the beneficiaries. Many use the income trust for their pension after retirement. In this case, if they were to become deceased then the beneficiaries would have access to the pension without any problems. The presence of income trusts are more widely seen in Canada. In the US, the income trusts are thought of as ‘Master Limited Partnerships’.

There are currently four styles of income trusts:

Investment Trusts = also called a mutual fund, established for the use of multiple beneficiaries to receive credit from equity on property.
Real Estate Investment Trusts = a way for property owners to invest while still having the backing of securities.
Royalty Trusts = also referred to as resource trusts or energy trusts, organized to gain profit from oil or other natural resources. The paid amount is not a fixed rate due to the fact that the energy levels will vary from month to month.
Business Income Trusts = organized on a capital structure and is used in manufacturing, food industry, and resource gain.
Utility Trusts = companies utilize this trust separate from others for investing in utility companies or other natural resources.

While the trust does provide income through properties, the amount paid out is not on a fixed rate. This means that the payments are not always guaranteed, and the ones in charge of the trust could accidentally pay out more than they earn. Those who open an income trust are not allowed to pick the trustees, also called the board of directors. Another risk involved with income trusts is the lack of access to debt marketers. Also, any changes in tax by the government will cause a decrease in the trust value. Even though there are evident risks involved, the risks are also present with other income gaining stocks. The benefit of the income trust is that the beneficiary will receive capital gain through the use of the stock market.