What Is an Income Trust?

An income trust is an investment trust that holds income-producing assets. It can be structured as either a personal investment fund or a commercial trust with publicly traded closed-end fund shares. Income trust managers typically seek to build a diversified portfolio of income-producing assets in the trust fund, which will have a steady stream of distributions.

Personal Income Trust

Trust funds are a personal investment tool often utilized to manage family assets and structure inheritances. An income trust will hold income-producing assets. It is typically managed by a trustee on behalf of a trustor who seeks to pass on the assets to a beneficiary. The terms of the trust fund are designated by the trustor and managed by the trustee. Personal income trust terms can include provisions that dictate the beneficiary’s involvement and inheritance transfer. Terms of the trust also detail the investment management and administration responsibilities of the trustee in managing the trust.

Publicly Traded Income Trusts

Retail investors may be more familiar with commercial income trusts, which they can buy and sell on financial market exchanges. To build a portfolio of income-producing assets and offer publicly traded shares on an exchange, an income trust must be registered as a corporation. Income trust corporations are commonly known as real estate investment trusts (REIT). The key designation that distinguishes real estate investment trust corporations is their election to file a Form 1120-REIT with the 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 a real estate investment trust 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 real estate investments. The income component of a corporate trust designated as a REIT makes the shares a good investment for income-focused investors.

Investing in REITs

Designated as a REIT, companies have various options to choose from when building and offering publicly traded investment trust shares. A REIT's portfolio will typically focus on equity, mortgage or hybrid investments. REITs are leading managers of residential and commercial properties. They also support loans in properties through various types of mortgages.

Investors in REITs support the investment objectives of the REIT managers. They can also expect to receive steady distributions, often paid monthly, quarterly, or annually, from the REIT as part of its 90% distribution requirement.

In 2017, SBA Communications was one of the REIT industry’s best performing investments. As of January 16, 2018, the REIT had a one-year total return of 48.43%. SBA Communications owns and develops properties in the United States, Canada, Central America, and South America. The real estate properties operate wireless infrastructure systems and traditional cell sites used for wireless communication by mobile carriers and wireless broadband providers.