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Employee trusts are a type of trust created by employers for the benefit of their employees, with the employer as the grantor and the employees as beneficiaries. The trustee manages the trust, which can include an ESOP or pension fund. The ESOP allows employees to receive shares of the trust without contributing, based on factors such as salary and length of employment.
An employee trust is a unique type of trust that can be offered as part of a company’s benefits package. Also called an employee trust, an employee trust is created by an employer. An employer may offer different types of employee trusts that benefit those who work for the company. Two of the most commonly created, however, are the employee stock ownership program (ESOP) and the pension fund.
An employer creates this type of trust for the benefit of his employees. In that case, the employer is the grantor, which basically means that the employer established the trust. The employees of the company are therefore considered the beneficiaries of the trust. As with other types of trusts, the person entrusted with its management is referred to as the trustee.
To understand what a dependent trust is, a person must first have at least a basic understanding of how trusts work. A trust is a legal arrangement in which one party, called a trustee, holds and manages assets on behalf of those who will benefit from the trust. These people are called beneficiaries and when an employee trust is established, the employees are the beneficiaries. Sometimes former employees of a company may also be included as beneficiaries. Employee trusts are usually discretionary, which means that the trustee has a good deal of say in how the trust is administered and often decides who should receive the shares and when they should receive them.
An example of employee trust is called an ESOP. With this type of arrangement, an employer contributes money to the trust. In some cases, a company may contribute shares in place of or in addition to cash. The trustee is tasked with purchasing stock on behalf of the employee trust fund, managing investments, and allocating stock.
With an ESOP, employees have individual accounts and receive shares of the trust. Generally, all employees of a company or all those who work full time are eligible to receive the stock allotment. Often, the allowance an employee receives depends on how much money she or she makes, but some companies make allowances based on how long the employees have worked for the company. With this type of benefit, the employee does not have to pay any type of contribution. The employer pays contributions, and each employee’s salaries and other benefits generally remain the same.
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