An employee trust is a type of trust offered as part of a company’s benefits package, with the employer as the grantor and employees as beneficiaries. The most common types are ESOP and Pension Fund, and the trustee manages the trust. ESOP allows employees to receive shares without making contributions.
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 benefit trust, an employer creates an employee trust. An employer may offer different types of employee trusts for the benefit of those who work for the company. However, two of the most commonly created are the Employee Stock Ownership Program (ESOP) and the Pension Fund.
An employer creates this type of trust to benefit its employees. In such a case, the employer is the grantor, which basically means that the employer established the trust. Company employees are considered beneficiaries of the trust. As with other types of trusts, the person in charge of managing it is called a trustee.
To understand what an employee 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 the trustee, owns 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 generally discretionary, which means that the trustee has a lot of say in how the trust is run and often decides who should receive the shares and when they should receive them.
An example of an 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 stock instead of or in addition to cash. The manager is assigned the job of purchasing shares on behalf of the employee trust, managing investments, and allocating shares.
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 stock awards. Often the allowance an employee receives depends on how much money they make, but some companies make allowances based on how long employees have worked for the company. With this type of employee benefit, the employee does not have to make any type of contribution. The employer makes the contributions, and each employee’s wages and other benefits generally stay the same.
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