A special purpose trust is a legal arrangement partly owned by the settlor (creator) and the beneficiary, with one or more trustees responsible for investing and managing the trust assets and safeguarding their interests. The purpose of such trusts is to provide financial support or some form of benefit to an individual or group of individuals.
One common example of a special-purpose trust is an educational trust. The trust, created with the intention of providing funds to pay for a beneficiary’s college education, is established and funded by the settlor and is administered by the trustees. The trust typically requires the trustees to invest the funds carefully; all investment profits can be used to pay for the beneficiary’s educational expenses or to be applied to tuition and ancillary costs of the college education. The trust often has a mandate set out by the settlor, instructing the trustees how to manage the money and how long the trust should exist.
Special-purpose trusts are sometimes used to provide support to communities or charities that are important to the settlor. For example, many special-purpose trusts have been established to fund local and national charities, such as conservation, educational, religious, and medical charities. These trusts may be structured as a private or public trust as opposed to a charitable trust. The funds are allocated to the target groups of beneficiaries according to the settlor’s instructions, and the trustees are obligated to use the funds in accordance with the trusts rules. In some cases, the trustees are allowed to invest the funds and make distributions according to the trusts terms.
Special-purpose trusts can also be used to provide financial support to an individual who is unable to support himself independently. For instance, an elderly or permanently disabled person may benefit from a trust fund created for his or her lifelong care. In such cases, a trust may be established with the settlors initial investment and income generated from the trust investments. The trustees are responsible for investing and managing the trust assets in a way that provides long-term support for the beneficiary. The specific instructions set out by the settlor in this regard are usually stated in the trust document, or in a separate document to be kept with the trust instrument.
Finally, a special-purpose trust can be created to benefit future generations. The trust is structured to invest and manage the assets in a manner that is advantageous to future generations, preventing dissipiation of the assets and ensuring that they are used in the best interest of the beneficiaries. The trusts investments can include real estate, bonds, mutual funds, and other forms of investments that may generate income over the long term. Depending on the trusts purpose, the trusts investments may be diversified or focused on a particular sector. A trust instrument prepared by the settlor and trustees will set out the trusts rules and determine its duration.
A special purpose trust is a versatile entity for achieving various goals. It can be used by individuals to provide financial support to family members, support local or national causes, or preserve assets for future generations. Understanding the elements and purpose of special purpose trusts is important for anyone considering establishing such a trust.
