What Is an Income Trust?

An income trust is an investment fund that provides a steady stream of payments to its investors by investing in assets that produce regular income. An income trust can be a personal investment fund or a commercial trust with publicly traded closed-end fund shares. An individual's income trust is an investment portfolio that is concentrated in assets that provide regular income, such as bond dividends and rent receipts. A real estate investment trust (REIT) is a type of commercial income trust.

Personal Income Trusts

澳洲幸运5官方开奖结果体彩网:Trust funds are often used by wealthy people to manage f𒉰amily assets and structure inheritances for generations. Their wealth is not paid out to their heirs. Rather, it remains invested in assets that produce income paid to the heirs.

The trust fund is typically managed by a trustee on behalf of a trustor who seeks t🧔o pass on the assets to a beneficiary. The terms of the trust fund are designated by𝔉 the trustor and managed by the trustee.

Personal income trust terms can include provisions that dictate the 澳洲幸运5官方开奖结果体彩网:beneficiary’s involvement and inheritance transfer. The terms of the trust fun🐷d also detail the investment management and administration responsibilities of the trustees.

Publicly-Traded Income Trusts

Retail investors can invest in comme🦋rcial income trusts, which are bought and sold on stock exchanges. Like trust funds, commercial income trusts invest money in income-producing assets.

The REIT is a well-known example. This type of trust buys and operates commercial or residential real estate, rewarding its investors with a stream of income that the property produces.

To build a portfolio of income-producing assets and offer publicly traded shares on an exchange, an income trust must be registered as a 澳洲幸运5官方开奖结果体彩网:corporation.

REITS and Tax Law

The key designation that distinguishes real estate investment trust corporations is their election to file a Form 1120-REIT with the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS). Tax laws for commercial trusts are detailed in Internal Revenue Code section 856.

As a commercial income trust, entities have a great deal of latitude in how they structure their businesses. However, filing a Form 1120-REIT with the IRS designates them specifically as REITs and requires them to pay 90% of their taxable income in distributions to their investors.

REITs are the most common corporate income trusts. They offer publicly traded shares on the open market and build a portfolio of income-paying 澳洲幸运5官方开奖结果体彩网:real estate investments. The income component of a corporate trust designated as a REIT🔜 makes the shares an investment option for inc൩ome-focused investors.

Investing in REITs

The portfolio of an exchange-traded REIT will typically focus on equity, mortgage, or hybrid investments. REITs are leading managers of residential and commercial properties. They also finance property developments through various types of mortgages.𝓡

The money invested in REITs finances the investment objectives of the REIT managers. The investor can also expect to receive steady distributions, which may be paid monthly, quarterly, or annually. As noted, exchange-traded REITs are required by law to distribute 90% of their income.

The Bottom Line

There is a wide variety of income trusts. They include an individual investor's conservative portfolio of assets that produce income. They are an estate planning tool when created to benefit the next generation of a wealthy family. The commercial versions, notably real estate investment trusts, are funds that pay investors a steady stream of income from the earnings of the fund.