by Fred Fuld III
The publicly traded trusts are different from regular stocks in that the earnings that are generated avoid double taxation. There is no taxation at the corporate level, only at the shareholder level. In addition, income that is distributed may be tax deferred. Most investors have heard of real estate investment trusts which invest in properties and/or mortgages, and oil & gas income trusts which receive income from gas and oil well royalties.
Oil income trusts have become so popular in Canada that the Canadian government has passed a law to end the pass through benefit in the next few years. The change in the trust law took place on January 1, 2011. What has happened in Canada is that other non-oil companies jumped on the trust bandwagon. So you ended up getting such stocks as a beer trust [Big Rock Brewery Income Trust], a trucking trust [TransForce Income Fund Trust], and a “parts and service support of mobile equipment, power systems and industrial components” trust [Wajax Income Fund].
Canada didn’t hold a monopoly over these trusts. There are several ‘unusual’ trusts that are traded in the United States, unusual being defined as non-REIT’s and non-oil & gas trusts. Here are just a few examples.
Mesabi Trust (MSB), founded in 1919, owns royalty rights in mineral properties in the United States. The Trust receives royalties based on the volume of shipments and the selling prices of iron ore pellets. Their properties are located in Louis County, Minnesota. The trust trades on the New York Stock Exchange and yields 5.28%. The trust does not pay corporate income tax. As such, in lieu of the Trust paying income taxes, the unit holders report their pro rata share of the various items of Trust income and deductions on their income tax returns.
Mills Music Trust (MMTRS) receives payments from a deferred contingent obligation payable to Mills Music Inc. for its catalogue of over 25,000 songs of copyrighted music. Some of the more famous songs in the catalog include “Stardust”, “When You’re Smiling”, “Sleigh Ride”, “I’m Getting Sentimental Over You”, “Who’s Sorry Now”, and “Little Drummer Boy”. Other songs include those written by Bing Crosby and Duke Ellington. Paul McCartney was reported as one of the major shareholders in the past. The company has paid consecutive quarterly dividends since 1965 [over 40 years] and currently yields 7.06%.
Check with your accountant before investing in any of these trusts.
Author owns MMTRS.