Holding Trusts Introduction
A Holding Trust is one (of many) element(s) in an overall asset management plan. Specifically, a Holding Trust
is a special kind of trust. Trusts are a type of legal entity that have been used for a very long time (used since
at least the middle ages). In simple terms, a trust is a four party contract where there is a creator, a settlor, a
trustee and a beneficiary. The creator is the person who creates the trust. The settlor is the person who puts
assets into the trust for the benefit of someone else, the beneficary. The beneficiary is the person who benefits
from the assets. The trustee is the person who manages the assets for the beneficiary. The document that
creates the trust, called the trust endenture, describes what the trust can and cannot do. Many forms of trusts
have very broad powers and can do the same kinds of things that many business entities (such as
corporations, partnerships, etc.) can do.
A Holding Trust is a specific type of trust with a very restricted set of powers. This kind of trust is solely for the
purpose of holding assets. So, many of the things that other types of trusts can do are not permitted in the
Holding Trust. This is a list of things that a Holding Trust cannot due including but are not limited to such things
as operating a business, take out a loan, opening a bank account. A Holding Trust is set up to be a very
simple entity with limited powers to make it easier to manage and try to avoid some of the potential pitfalls that
can occur with a more complicated trust.
A Holding Trust, like any other entity can be sued. So a principle of good entity structuring is to limit the amount
of exposure of your overall assets by putting a limited set (perhaps only one) asset in each trust. In this way, if
the trust is ever sued and looses the suit,
the only asset that is at risk is the asset that is in the trust that was sued.
The Holding Trust would have no direct relationship with the entity that wants to use the asset held by the trust.
That is to say, that the entity that wants to use the assets should not be the creator, settlor, trsuttee or
benefiticary of the trust that holds the asset.
Perhaps an example would be helpful at this point. Let's say that a road construction company, structured as
an LLC, wants to use various equipment but it doesn't want to own the equipment. So the owner of the
caterpillar tractor (settlor of the trust) asks someone to create a trust (the creator) and donates the equipment
into the trust. Then the trust trustee sets up a contract for the use of the equipment with the LLC in exchange for
the LLC making the insurance and tax payments on the equipment. In this way, the company doesn't risk being
sued if the equipment injures someone or damages some property.
If you have questions about the Holding Trust and how it can be used as part of an overall asset management
plan, please contact RV Marlow with your questions at 941-371-7493.
A Holding Trust is one (of many) element(s) in an overall asset management plan. Specifically, a Holding Trust
is a special kind of trust. Trusts are a type of legal entity that have been used for a very long time (used since
at least the middle ages). In simple terms, a trust is a four party contract where there is a creator, a settlor, a
trustee and a beneficiary. The creator is the person who creates the trust. The settlor is the person who puts
assets into the trust for the benefit of someone else, the beneficary. The beneficiary is the person who benefits
from the assets. The trustee is the person who manages the assets for the beneficiary. The document that
creates the trust, called the trust endenture, describes what the trust can and cannot do. Many forms of trusts
have very broad powers and can do the same kinds of things that many business entities (such as
corporations, partnerships, etc.) can do.
A Holding Trust is a specific type of trust with a very restricted set of powers. This kind of trust is solely for the
purpose of holding assets. So, many of the things that other types of trusts can do are not permitted in the
Holding Trust. This is a list of things that a Holding Trust cannot due including but are not limited to such things
as operating a business, take out a loan, opening a bank account. A Holding Trust is set up to be a very
simple entity with limited powers to make it easier to manage and try to avoid some of the potential pitfalls that
can occur with a more complicated trust.
A Holding Trust, like any other entity can be sued. So a principle of good entity structuring is to limit the amount
of exposure of your overall assets by putting a limited set (perhaps only one) asset in each trust. In this way, if
the trust is ever sued and looses the suit,
the only asset that is at risk is the asset that is in the trust that was sued.
The Holding Trust would have no direct relationship with the entity that wants to use the asset held by the trust.
That is to say, that the entity that wants to use the assets should not be the creator, settlor, trsuttee or
benefiticary of the trust that holds the asset.
Perhaps an example would be helpful at this point. Let's say that a road construction company, structured as
an LLC, wants to use various equipment but it doesn't want to own the equipment. So the owner of the
caterpillar tractor (settlor of the trust) asks someone to create a trust (the creator) and donates the equipment
into the trust. Then the trust trustee sets up a contract for the use of the equipment with the LLC in exchange for
the LLC making the insurance and tax payments on the equipment. In this way, the company doesn't risk being
sued if the equipment injures someone or damages some property.
If you have questions about the Holding Trust and how it can be used as part of an overall asset management
plan, please contact RV Marlow with your questions at 941-371-7493.