DEFINITION of 'Personal Trust'

A personal trust is a trust that a person creates for him or herself as the beneficiary. A personal trust can accomplish a variety of objectives. Personal trusts are separate legal entities that have the authority to buy, sell, hold and manage property for the benefit of their trustor.

BREAKING DOWN 'Personal Trust'

Personal trusts can take many forms. They can be revocable or irrevocable, living or testamentary. They can fund education expenses, meet special needs of beneficiaries or allow them to avoid or reduce estate taxes. They can also be separate taxable entities or pass-through entities. (These entities pass their taxes through an individual income tax code rather than a corporate code.)

A person may set up an irrevocable personal trust to pay for their own or children’s education. In this situation, the trustor would create the trust with the assets that she or he has set aside to seed the trust. Following this she or he will usually seek the advice of a trust or estate lawyer to complete the process, along with a custodians to hold the asset and potentially additional investment advisors to manage them until it is time for withdrawal. A trustor will usually set up an investment policy to guide the investment advisor in managing the trust for growth or modest income, depending on the objectives of the trustor and when she or he will need the funds.

The investment advisor will have a fiduciary duty to the trustor in managing the trust funds, obligating them to manage these assets for the benefit of the other person rather than for his or her own profits. Fiduciaries are absolutely prohibited from engaging in any fraudulent or manipulative behaviors when working with beneficiaries. In addition, they must adhere to the investment policy set forth in the trust agreement. For example, if the trustor has explicitly stated that she or he would like to focus on protecting the assets and keep pace with inflation, along with generate modest growth. The fiduciary may not invest in high-risk, high-reward opportunities even if they believe in the bets’ abilities to grow the wealth of the fund.

Personal Trust Services

Many asset managers offer personal trust services. Charles Schwab, for example, offers to be a trustee in three capacities:

  1. A sole trustee that assumes all investment, administrative, and fiduciary responsibilities of managing the trust according to terms that the trustor clearly defines
  2. A co-trustee, in which Charles Schwab assumes responsibility in tandem with another trustee that an individual trustor designates (In this arrangement, Charles Schwab will also assume full investment management responsibilities yet may share some discretionary decision-making with the co-trustee(s).)
  3. A successor trustee, in which the firm takes over in the event that the trustor or co-trustee that an individual has named is no longer willing or able to serve
  1. Active Trust

    An active trust is a trust in which the trustee is required to ...
  2. Trust

    A trust is a fiduciary relationship in which the trustor gives ...
  3. Naked Trust

    A naked trust is a basic, simple type of trust into which a trustor ...
  4. Qualified Trust

    A qualified trust is a tax-advantaged fiduciary relationship ...
  5. 5 by 5 Power in Trust

    A “5 by 5 Power in Trust” is a common clause in many trusts that ...
  6. Trust Company

    A trust company is a legal entity that acts as fiduciary, agent ...
Related Articles
  1. Retirement

    How to set up a trust fund if you're not rich

    You don't need to be wealthy to create your own trust fund. Here's why and how to go about it.
  2. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  3. Retirement

    Estate Planning for Beginners: Part Three

    A primary purpose of most trusts is to provide a timetable for the distributions of assets where an outright distribution may not be warranted.
  4. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex. Here's what you'll need to discuss with your lawyer.
  5. Financial Advisor

    Should You Put Your Faith In A Trust?

    Many institutions want a piece of your portfolio, but trusts can provide a one-stop shop.
  6. Personal Finance

    Buying a Home in Trust

    Buying a home in a real estate trust allows for tax advantages, possibly avoiding probate court, and future family conflict. Below we outline the two different types and what to arm yourself ...
  7. Retirement

    When a Revocable Trust Makes Sense

    A revocable trust can play an important role in an estate plan.
  8. Investing

    A Look Into Creating a Trust Fund With ETFs (VCIT, SDIV)

    Learn the basics of how a trust works and the two most common types. Discover how to use ETFs to fund a trust and the different strategies.
  9. Managing Wealth

    When to Trust a Revocable Trust

    Unsure how your assets will be dispersed once you're gone? Here's a revocable trust can help.
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center