DIY Investment Trusts

Many people prefer a hands-on approach when it comes to their money. Those investing do-it-yourselfers put their time into managing their risk and return, and this affords them flexibility in the types of ventures they can invest in, including some that are not available through typical retail investment outlets. By setting up an investment trust, a DIY investor can keep his investment activities separate and limit his risk exposure.

Trust Basics

Trusts are separate legal entities that are responsible for administering property for the benefit of someone else. A grantor puts assets into a trust, which is then managed by a trustee to benefit the beneficiary. In a typical DIY investment trust, the active investor serves all three roles, but that doesn’t need to be the case. For instance, one amateur investor might manage investments for friends and family members using trusts.

Alternative Investment Options

Most retail investors are limited in where they can put their money by the choices of fund managers and retail banks. A do-it-yourself investor, on the other hand, isn't restricted to publicly traded companies and investment funds. Many families use investment trusts to simplify ownership of freely traded investments, such as small businesses or real estate. Some investment clubs -- groups of amateur investors who pool their money -- operate using trusts.

Tax Basics

Income generated by trusts is generally taxable to the trust itself or its beneficiaries, depending on how the trust is set up. As long as the grantor retains the rights of ownership over the assets and income in the trust, the grantor reports the income directly on his taxes. If the property was irrevocably transferred to the trust, any income the trust pays out is taxable to the beneficiaries, while the trust pays tax on distributable income it retains.

Estate Planning Uses

Trusts are often used to make it easier to pass property to another after someone’s death, because assets in a trust do not enter into the deceased’s estate, which has to go through probate. This benefit is especially attractive for sheltering family investments from being frozen during probate if the person designated to own the property dies. Another common estate planning use for an investment trust allows people to set assets aside for charitable giving but keep the income from the assets for their own use until they die.

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About the Author

Sean Butner has been writing news articles, blog entries and feature pieces since 2005. His articles have appeared on the cover of "The Richland Sandstorm" and "The Palimpsest Files." He is completing graduate coursework in accounting through Texas A&M University-Commerce. He currently advises families on their insurance and financial planning needs.

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