Nominee Trust vs. Pure Trust

Attribute	Nominee Trust	Pure Trust
Legal Ownership	Legal title held by trustee	Legal title held by trustee
Beneficial Ownership	Beneficiary retains beneficial ownership	Beneficiary retains beneficial ownership
Control	Trustee has control over assets	Trustee has control over assets
Privacy	Can provide privacy for beneficiary	Can provide privacy for beneficiary
Asset Protection	Can offer asset protection	Can offer asset protection

Introduction

Trusts are a popular estate planning tool that can help individuals protect their assets and ensure their wishes are carried out after they pass away. Two common types of trusts are nominee trusts and pure trusts. While both serve similar purposes, there are key differences between the two that individuals should consider when deciding which type of trust is right for them.

Definition

A nominee trust, also known as a nominee real estate trust, is a legal entity that holds title to real estate on behalf of the beneficiary. The trustee of the nominee trust is typically a nominee or strawman who holds legal title to the property but has no control over the property or its management. The beneficiary retains all rights to the property and can make decisions regarding its use and disposition.

A pure trust, on the other hand, is a legal entity that holds assets for the benefit of the beneficiaries. Unlike a nominee trust, a pure trust is not limited to real estate and can hold a variety of assets, such as cash, stocks, and bonds. The trustee of a pure trust has a fiduciary duty to manage the trust assets in the best interests of the beneficiaries and follow the terms of the trust agreement.

Control

One of the main differences between a nominee trust and a pure trust is the level of control the beneficiary has over the trust assets. In a nominee trust, the beneficiary retains full control over the property held in the trust. The trustee of the nominee trust is simply a legal placeholder and does not have any decision-making authority.

In contrast, in a pure trust, the trustee has the authority to manage the trust assets and make decisions on behalf of the beneficiaries. While the beneficiaries ultimately benefit from the trust assets, they do not have direct control over how the assets are managed or distributed.

Privacy

Privacy is another important consideration when comparing nominee trusts and pure trusts. Nominee trusts are often used to maintain the privacy of the beneficiary, as the trustee's name is listed on the public record as the owner of the property. This can be beneficial for individuals who wish to keep their ownership of real estate confidential.

On the other hand, pure trusts do not offer the same level of privacy as nominee trusts. Since the trustee of a pure trust has a fiduciary duty to manage the trust assets on behalf of the beneficiaries, the trust agreement and the identities of the beneficiaries may be disclosed to third parties, such as creditors or government agencies.

Asset Protection

Asset protection is a key consideration for individuals looking to establish a trust. Nominee trusts can provide some level of asset protection, as the property held in the trust is not considered the personal property of the beneficiary. This can help shield the property from creditors or legal claims against the beneficiary.

Similarly, pure trusts can also offer asset protection for beneficiaries. Since the trust assets are held separately from the beneficiaries' personal assets, they may be shielded from creditors or legal judgments. However, the level of protection may vary depending on the specific terms of the trust agreement and the jurisdiction in which the trust is established.

Tax Implications

Another important factor to consider when comparing nominee trusts and pure trusts is the tax implications of each type of trust. Nominee trusts are typically pass-through entities for tax purposes, meaning that any income generated by the trust is reported on the beneficiary's tax return. This can be advantageous for individuals looking to minimize their tax liability.

On the other hand, pure trusts are separate legal entities for tax purposes and may be subject to their own tax obligations. The trustee of a pure trust is responsible for filing tax returns on behalf of the trust and paying any taxes owed. This can add an additional layer of complexity to the administration of the trust.

Conclusion

In conclusion, nominee trusts and pure trusts are both valuable estate planning tools that can help individuals protect their assets and ensure their wishes are carried out. While both types of trusts offer benefits in terms of control, privacy, asset protection, and tax implications, it is important for individuals to carefully consider their specific needs and goals when choosing between the two. By understanding the key differences between nominee trusts and pure trusts, individuals can make an informed decision that aligns with their estate planning objectives.