A trustee is a person or company that holds assets for the benefit of a third party and administers the property in accordance with the terms outlined in a trust agreement.
Trusts are not legal entities. A trust is a legal arrangement whereby a trustee will hold legal title to assets on behalf of another person or persons.
In general, the principal purpose of a trust is the preservation of capital. In contrast, a legal entity (e.g., corporation, limited liability company (LLC), or limited company (Ltd), is used to conduct an active trade or business with a for-profit motive.
Example Trust Arrangement
Jane Doe wants to set up an irrevocable trust that will pay trust accounting income to Jane during her lifetime and, following her death, to Jane’s daughter, Emily.
Jane’s lawyer drafts an irrevocable trust agreement, Jane Doe Irrevocable Trust, appointing ABC Bank as the trustee. Jane transferred $1,000,000 to a bank account opened for the Trust. ABC Bank invests the cash in corporate bonds that pay regular interest income. ABC Bank regularly calculates the trust accounting income and pays such income to Jane.