Difference Between Private and Public Trust

A trust is an instrument used to manage assets on behalf of a third party. There are two types of trusts: private and public.

Each trust comes with different legalities and implications regarding who can access funds and how they’re used, who are the beneficiaries, and the investment of funds.

 Private vs Public Trust

The main difference between private and public trust is that a private trust has a single beneficiary or is limited. Still, on the other hand, the beneficiaries of public trust are a long list of people or the public. This gives rise to the fact that investment is vested in specific individuals in private trusts, whereas in public trusts, it is uncertain. 

Private and Public Trust

A private trust can be used to preserve assets so that they are not distributed to the beneficiaries until a specific time and date that you designate.

A private trust is not managed by the government, shareholders, or creditors. The person who has the power over the trust is the trustee. The owner of the trust is called the settlor.

Public trust is a common good held in trust for the people. It can be held by a government or an individual. The idea is to provide for people who cannot take care of themselves.

Examples of public trusts are welfare, schools, roads, and military trusts. Public trusts are also taxed under regulations set by the government.

Comparison Table Between Private and Public Trust

Parameters of ComparisonPrivate TrustPublic Trust
BeneficiariesPrivate trusts usually have a defined set or a single individual or body or beneficiaries.Public trusts are open networks and have a larger group of beneficiaries.
TrusteeThere is usually a predefined single individual or group acting as trustee.There are a number of trustees in public trust.
TypesPrivate trusts are of three broad types: Irrevocable, determinate, and discretionary.Public trusts are usually two types: Charitable and religious.
DiscretionPrivate trusts require permission to be questioned or investigated.Public trusts are open to all inspection as information is circulated in open among members.
PurposePrivate trusts are usually created to benefit specific individuals or parties.Public trusts are generally set up for the well-being of the public.

What is Private Trust?

To have a private trust is to have a legal entity that holds assets and/or property on behalf of an individual.

They are usually set up for the benefit of minors or people with a medical condition or to help in some Nobel or important purpose like education, food security, and so on.

 Organizations that have their private trust include the Bill and Melinda Gates Foundation, the Rockefeller Foundation, and the M.J. Murdock Charitable Trust.

It is a blanket term for the legal agreement in which a given individual is holding assets over for another individual or a group of individuals. Usually, this is controlled by a trustee who is appointed by the grantor(s).

A private trust is a financial product within the investment industry. It is legal but not regulated. It is a private investment vehicle used to manage assets.

A private trust is capable of holding assets similar to those held in a trust, including real property, bank accounts, and other assets.

Assets that can be held in a private trust are generally assets that are difficult to hold directly, including assets of a foreign parent company, assets on which the beneficiaries have creditor claims, or assets that are subject to estate tax.

Private trusts are not regulated by the government but are generally aimed at avoiding multiple estate tax payments.

What is Public Trust?

There are two definitions for public trust. First, public trust can be a financial arrangement that is set up when a trustee holds money or property for the benefit of others.

Second, public trust can be a government bond that can be bought by people who don’t have enough money to buy stocks from an organization.

Both of these definitions of public trust are very similar, as they are both centered around having trust over money or property for the betterment of others.

In most cases, public trust is formed because of an individual or family’s desire to make sure certain things are done with their money.

This is called trust, which means that it is something left to be managed by another person. For instance, a person might have their money managed by a trust if they aren’t able to do the managing themselves.

Public trusts are not held as property, and when held by a government, it is not a sovereign good. The power of the government is not absolute if they hold a public trust.

The rights of citizens are very important, and every citizen has a say in how public trust is used.

Many different kinds of entities can have public trusts, including state governments and governmental agencies, but they’re also used by groups of private citizens who feel strongly that they are helping to improve their community.

Main Differences Between Private and Public Trust

  1. Information shared within the public trust can be viewed freely by anyone. While the information within a private trust is only visible to those within the private trust.
  2. Private trusts are typically smaller and used for investing in short-term loans, and public trusts are typically larger and used for investing in real estate.
  3. A private trust involves a trustee who manages the assets of the trust for the benefit of one or more beneficiaries. A public trust does the same, but for a larger audience of beneficiaries.
  4. A private trust is one that only benefits one or several individuals. Public trust is when there are several beneficiaries to the trust.
  5. There is a difference in the purpose of a private trust that is for the benefit of a specific group of people or person, such as a spouse, children, relatives, or other beneficiaries, and public trust in which the settlor has set up for the benefit of people that are unknown to the settlor and need assistance.

Conclusion

In business, a trust is a legal entity that is formed to hold the property for one or more beneficiaries. A trust is a fiduciary relationship in which the trustee is the owner of the property or assets held.

The trustee is responsible for administering the trust and uses its property or assets for the benefit of the beneficiaries, who are also called cestui que trust.

While both private and public trusts are trusts, there are important differences between the two. The main distinction between public and private trusts is the way assets from an estate are held and transferred.

It is important to know the difference between the two before investing in any of them.

References

  1. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-2230.2006.00598.x
  2. https://books.google.com/books?hl=en&lr=&id=p6fEAAAAIAAJ&oi=fnd&pg=PR7&dq=private+trusts&ots=P0IpMsKAGm&sig=830Xc5tsbLRN49-HE1dzP_AzTx8
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