Trust only: Overview, definition, and example
What is "trust only"?
"Trust only" refers to a situation or arrangement where a specific asset or property is held exclusively in trust for a designated beneficiary, and the asset cannot be used for any purpose other than as outlined in the trust agreement. This means that the property, funds, or asset is to be managed by the trustee solely for the benefit of the beneficiary according to the terms set by the trust. The trustee has a fiduciary duty to act in the best interests of the beneficiary and cannot use the trust’s assets for their own benefit.
Why is "trust only" important?
"Trust only" is important because it ensures that assets are protected and used exclusively for the benefit of the beneficiary, preventing misuse, mismanagement, or diversion of assets by the trustee or any other party. This arrangement is often used in estate planning, financial management, and charitable donations to ensure that assets are handled according to the donor's wishes or the terms of the trust. It also provides a legal framework for the trustee to manage the assets responsibly and with transparency.
Understanding "trust only" through an example
Imagine an individual creates a trust for their child, with the intention that the funds be used only for the child’s education. The trust agreement specifies that the funds held in the trust are to be used strictly for tuition, books, and other educational expenses. The trustee, who is responsible for managing the trust, cannot use the funds for anything other than educational purposes, such as personal spending or investment, as the trust is "trust only" for the child’s education.
In another example, a philanthropist creates a charitable trust to benefit a specific cause, such as funding research for a particular disease. The terms of the trust specify that the funds can only be used for that research. The trustee is prohibited from using the funds for any other charitable purposes or administrative expenses that do not align with the goals of the trust.
An example of a "trust only" clause
Here’s how a clause about "trust only" might appear in a trust agreement:
“The Trustee shall hold the assets of this Trust solely for the benefit of the Beneficiary and shall use the Trust property only for the purposes outlined in this Agreement. The Trustee shall not use the Trust property for any personal, business, or other purposes not explicitly permitted under the terms of this Trust.”
Conclusion
"Trust only" ensures that assets are handled strictly according to the intentions of the grantor or the terms of the trust agreement. It helps protect beneficiaries and ensures that assets are used in a manner that aligns with the stated purpose. By clearly defining the terms under which assets are held and managed, "trust only" arrangements provide security, transparency, and accountability.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.