Private vs Public Trust: Difference and Comparison

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.

Key Takeaways

1. Private trusts are established for specific individuals or small groups, while public trusts are created for charitable or public purposes.
2. Private trusts are governed by the trust deed and subject to the terms set by the settlor, while public trusts must adhere to legal regulations and are accountable to the public.
3. Public trusts enjoy tax exemptions and can accept donations from the public, while private trusts have limited tax benefits and rely on the settlor’s contributions.

 Private vs Public Trust

A private trust is set up for a specific individual or family, managed by a trustee. The trust’s creator determines the terms of a private trust. A public trust is created for charitable or public purposes and is managed by trustees. They are subject to government regulation, while private isn’t.

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

Parameters of Comparison	Private Trust	Public Trust
Beneficiaries	Private trusts have a defined set or a single individual or body or beneficiaries.	Public trusts are open networks and have a larger group of beneficiaries.
Trustee	There is a predefined single individual or group acting as trustee.	There are a number of trustees in public trust.
Types	Private trusts are of three broad types: Irrevocable, determinate, and discretionary.	Public trusts are two types: Charitable and religious.
Discretion	Private trusts require permission to be questioned or investigated.	Public trusts are open to all inspection as information is circulated in open among members.
Purpose	Private trusts are created to benefit specific individuals or parties.	Public trusts are 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 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 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 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 smaller and used for investing in short-term loans, and public trusts are 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.

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

Last Updated : 20 July, 2023