MLP Master Limited Partnerships are limited by US Code to only apply to enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. Some real estate enterprises may also qualify as MLPs. Because MLPs are a partnership, they avoid the corporate income tax, on both a state and federal basis. Additionally, the limited partner (investor) may also record a pro-rated share of the MLP's depreciation on his or her own tax forms to reduce liability. This is the primary benefit of MLPs and gives MLPs relatively cheap funding costs. However, this makes MLPs unattractive to tax-deferred funds, who must lose this tax saving advantage. To encourage tax-deferred investors, many MLPs set up corporation holding companies of LP claims which can issue common equity.
Trust In common law legal systems, a trust is a relationship whereby property (including real, tangible and intangible) is managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a settlor, who entrusts some or all of their property to people of their choice. The trustees hold legal title to the trust property, but they are obliged to hold the property for the benefit of one or more individuals or organizations, usually specified by the settlor, who hold equitable title. The trustees owe a fiduciary duty to the beneficiaries, who are the "beneficial" owners of the trust property. The trust is governed by the terms of the trust document, which is usually written and occasionally set out in deed form. It is also governed by local law. The trustee is obliged to administer the trust in accordance with both the terms of the trust document and the governing law. Comments There are differences between MLP and Trusts. Both are partnership of sorts labeled with different appellations. Both are instruments used to limit the tax liabilities. Trust apply to any financial arrangement. MLP are intended to be used for natural resources. From my point of view MLP are not expenses free I am liable for the UTBI , trust is expenses free. Trading within a 401K or an IRA offers no capital gain tax. I am taxed as per my income bracket once I withdraw moneys from my IRA. From a trading angle MLP and Trust are the same.
Liza says: "The US trusts are not allowed to add to their resources so they are a depleting asset. MLPs can and do add to their reserves by dropdowns and acquisitions." An example of a MLP, below, shows that the way a MLP is formed and managed. The primary advantage of forming a MLP is to pass on the tax liability to lower taxable entities. The operator does not own anything which shield the operator for taxes on capital. The MLP is the owner but does not produce anything, the owner, the MLP, is paid by the operator, shall we say a rent like amount. Than the MLP asset can be held in part by another corporation that is taxed under yet another taxing regime. The contention that MLP assets can be added is tenuous in that the corporate partner may add assets that may not show on the MLP fact sheets. From a taxation angle, MLP can be extremely advantageous. It is true that MLP are much more complicated but limited to "natural resources'". Trusts on the other hand are more straight forward but can be formed for just about anything. An example is the pipeline company Kinder Morgan Energy Partners. The main corporation, Knight, Inc. (formerly traded on the NYSE as KMI), is the operator of the pipelines and other assets. However, the pipelines themselves are owned by the MLP Kinder Morgan Energy Partners, L.P. (NYSE:KMP). Finally, part of KMP's limited partner interests are held by the corporation Kinder Morgan Management LLC (NYSE:KMR) which allows tax-deferred investors to participate in KMP's operations.