A trust is a very common legal creation that allows users to easily maintain, manage and transfer assets. There are many different types of trusts based on the needs of the users, but many are created simply to transfer assets from one party to another. In this case, the abbreviation FBO, ("for the benefit of") is routinely used to signify how the trust works. The phrase is common in legal discussions on how the trust is created and documented.
FBO is a phrase used to designate a specific party as the primary beneficiary for the trust. When a trust is held FBO, it is held so that one party can take advantage of it and its funds. This is often an individual, but that is not necessarily the case. Sometimes trusts are created for the benefit of businesses or nonprofit organizations. Sometimes trusts are also designed to benefit a group of individuals instead of just one person.
Purpose of a Trust
The phrase "FBO in trust" is central to the purpose of the trust itself. Some trusts exist to manage themselves and produce particular, usable returns or provide protection for assets. These trusts do not always need specific FBO language, only a specific purpose. But other trusts that are designed to actually convey ownership and value need the FBO signification in order to operate legally.
Settlors, Trustees and Beneficiaries
A trust with an FBO designation has a settlor, a trustee and a beneficiary. A settlor is the person who actually creates the trust and chooses its purpose and – with the help of an attorney – its legal language. The trustee is the person who manages the trust. With an FBO trust, a trustee is necessary to manage the assets and ensure that the beneficiary receives value as indicated by the trust's language. The beneficiary, of course, is the person who benefits from the trust and may eventually own its assets fully.
The exact details depend on how the trust was set up by the settlors and any legalities that come afterward. In some cases, the trustee and the settlor can be the same person, though this is certainly not required.
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Trusts created for the benefit of a particular party have several common purposes. For example, parents may create such a trust in order to transfer assets to their children in specific ways upon their death. In some cases a trust can be used to skip a generation and benefit grandchildren instead of parents. In these cases the trust often provides payments for the beneficiary until she can reach a certain age and then inherit the assets in full, but the details vary greatly from trust to trust.