A Deed of Trust is a formal written agreement between the seller and the buyer to temporarily give the property to a neutral third party to serve as a trustee.
Unlike other types of Real Estate Deeds, a Deed of Trust does not transfer real estate directly – the trustee holds the property until the buyer pays the purchase price. In many states, these forms are used instead of mortgages. There are four different types of Trust Deeds:
Discretionary or family trusts allow the trustee to make decisions for the trust and to distribute capital and income to the beneficiaries. Direct descendants trusts usually contain provisions preventing the trustee from distributing capital to anyone who is not a direct descendant of the nominated beneficiary. Unit trusts permit the distribution of capital and income in fixed proportions. Fixed unit trusts entitle individuals to all of the capital and income of the trust.
A Deed of Trust is a relatively simple document. Traditionally, the Deed indicates the name of the trustee – an individual or an organization impartial in the arrangement, the clear identification of the beneficiary, and the nature of the trust property. The parties to this agreement are free to negotiate the powers and duties included in the Deed. The document must be prepared in writing to avoid ambiguity and uncertainty and to be enforceable in courts.
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