What is a Trust Fund? Thai investors should know this asset management tool.

Why Study Trust Fund

For investors seeking to expand their investment channels beyond stocks and ordinary mutual funds, understanding Trust Funds is essential because they are highly flexible asset management tools that provide access to large-scale assets that might be beyond the capacity of an individual to invest alone.

Trust Fund: Meaning and Operating Mechanism

Trust Fund is a legal mechanism designed for managing and overseeing assets, allowing unit holders to earn returns from a variety of assets.

The Trust Fund system relies on the principle of transferring assets to a (Trustee), who manages according to the founder’s (Settlor)'s wishes, and provides returns to the (Beneficiary) as specified in the agreement.

Assets that can be managed under a Trust Fund

The diversity of assets is a key feature of Trust Funds:

• Cash and general investments
• Real estate (Land, Buildings, Condominiums)
• Stocks and bonds
• Businesses and ownership rights
• Art and valuables
• Debts and other income-generating assets

Main Benefits of Using a Trust Fund

1. Flexibility in Design and Management

Unlike establishing a fund that requires registration and approval from government agencies, a Trust Fund is a contractual agreement that can be more easily modified to suit needs.

2. Income without Transferring Ownership

Trust Funds allow the founder to benefit third parties without physically transferring assets. They are often used in financial planning and estate transfer.

3. Tax Benefits

In many countries, establishing a Trust Fund can offer tax advantages because the operation does not constitute a full transfer of assets.

4. Asset Management in Special Situations

Revocable Trusts (Revocable Trust) enable professional management when the owner is ill, incapacitated, or needs others to manage.

Types of Trust Funds

Based on Revocability

Revocable Trusts (Revocable Trust)

• The settlor can cancel or modify the terms
• Highly flexible in management

Irrevocable Trusts (Irrevocable Trust)

• Cannot be canceled after establishment
• Provide greater asset protection

Based on Purpose and Asset Type

Trust Funds can be classified as:

• Asset Protection Trust - to protect and manage assets
• Blind Trust - settlor unaware of management details
• Charitable Trust - for charity and donations
• Generation-Skipping Trust - for future inheritance planning
• Real Estate Trust - for managing real estate assets
• Marital Trust - for managing marital assets and division
• Special Needs Trust - for other specific purposes

Structure of a Trust Fund: Three Parties Involved

Settlor ( (Founder)

Owns the assets from the start, signs the establishment agreement, and sets the intent for asset management. Although after establishing the Trust Fund, the settlor cannot directly use or operate with the assets, ownership remains.

) Trustee ### (Trustee) Manages the assets according to the contract, aims to generate returns, can deduct management fees, but has no rights to the benefits personally.

( Beneficiary ) (Beneficiary) Receives benefits from the Trust Fund as per the agreement, can claim damages if the trustee breaches the terms, and has rights to assets.

Basic Components of Establishing a Trust Fund

Establishing a Trust Fund requires three complete conditions:

1. Certainty of Intent ( (Certainty of Word)

The establishment contract must have clear terms, avoiding confusion between the settlor and trustee.

) 2. Certainty of Subject Matter ### (Certainty of Subject Matter) The assets managed must be tangible, clearly identifiable, and have a plan for income generation.

( 3. Certainty of Object ) (Certainty of Object) The beneficiaries must be real, existing persons, not missing or deceased.

Differences Between Trust Fund, REIT, and Mutual Fund

Trust Fund vs. REIT

Similarities:

• Neither has legal personality
• Established by contract
• Manages assets to generate income for unit holders

Differences:

• REITs are limited to real estate assets only
• Trust Funds have broader asset management options
• Therefore, REITs are a specific type of Trust Fund

( Trust Fund vs. Mutual Fund )Fund###

Legal Differences:

• Mutual funds are legal entities
• Trust Funds lack legal personality

Management Differences:

• Mutual funds collect money from investors and invest further
• Trust Funds transfer assets directly from the settlor for management

Efficiency Differences:

• Mutual funds require registration and approval
• Trust Funds have more flexible establishment processes

Trust Funds in Thailand: Options for Investors

( Legal Framework and Permits

Thailand permits Trust Funds only for fundraising in the stock market. The Securities and Exchange Commission has defined two types:

) Type 1: Active Trust ### (Management and Investment Trust)

Established to manage and operate assets for returns, such as:

• Trust Funds for institutional and high-net-worth investors ###II/HNW Trust Fund(
• Trust Funds for real estate investment )REIT###

Type 2: Passive Trust ( (Holding and Debt Repayment Trust)

Established to hold and manage assets for specific purposes, such as:

• Employee stock option plans )ESOP(
• Joint investment projects between employers and employees )EJIP(
• Reserve or installment funds for bond repayment

) Current Situation of Trust Funds in Thailand

Most Trust Funds established in Thailand are Real Estate Investment Trusts ###REIT( for real estate investment, making it accessible to the general public because assets are tangible.

Advantages of investing in REIT via Trust Fund:

• Easier asset verification
• Suitable for beginners to buy and sell
• Transparent and investor protection

Basic Information for Thai Investors

) How to Invest in Trust Funds

1. Review the contract details - Read thoroughly to understand objectives and management
2. Assess risks - Consider asset types and trustee track record
3. Invest via stock exchange - For Trust Funds offered to the public
4. Monitor returns - Check management reports and dividends regularly

( Points to Consider

• Asset type and quality being managed
• Trustee experience and credibility
• Management fees and other costs
• Dividend policy
• Contract termination or exit conditions

Conclusion: Trust Fund as an Important Tool

Trust Fund is no longer a complicated concept, as it is a tool for asset management that originated from estate planning and has evolved into modern investment activities.

Key points to remember:

• Trust Funds are management systems based on contracts among three parties
• Can manage a wide range of assets from cash to real estate
• REIT is just a specific type of Trust Fund focused on real estate
• In Thailand, most investors access Trust Funds through REITs, which are safe and easy to understand

Investing in Trust Funds or REITs is another option for investors seeking diversification in wealth creation without requiring large initial capital.