What is a Property Trust Fund?

A property trust is a type of trust fund that holds a portfolio of real properties as the assets used to grow the fund. Trusts of this type may be listed on a stock exchange, or may remain unlisted. In most cases, a property trust fund is a managed fund in which the administrator or trustee is responsible for managing the properties in the investment portfolio so that a steady return is maintained, allowing the fund to grow.

In terms of the type of property included in a property trust fund, the inclusion of commercial buildings is often key to the success of the portfolio. Buildings that can be leased to long-term tenants create a steady flow of income for the trust fund, which in turn helps to ensure that the beneficiary of the fund has access to a consistent income from the fund. At the same time, those returns may be used to purchase additional buildings, which also begin to generate income for the trust. When managed efficiently, a property trust fund can easily provide for beneficiaries without the need to sell off any assets in order to meet those obligations.

Depending on regulations put in place by revenue agencies, the income to a property trust fund may or may not be taxable. In many nations, taxes are not due unless the income generated with a defined period, such as a calendar year, exceeds a certain amount. Even then, the tables used to calculate the amount of taxes due may be very different from the tables used for other investments or income. As a result, the amount of taxes paid may be significantly less than with other types of investments or trust funds.

As with just about any type of trust, a property trust fund is usually established as a means of providing steady income for a loved one, or as a source of income for the retirement years. In either scenario, the success of the fund rests in choosing the right properties to acquire for the trust. Along with choosing the right properties, it is also important to periodically evaluate the returns generated by those properties. In situations where a holding is depreciating in value, or beginning to require more repairs and upkeep than in the past, the fund manager may feel it is in the best interests of the trust to sell that asset. This makes it possible to acquire a new holding that will generate a more equitable amount of income, without utilizing any current balances in the fund.