The term widely held fixed investment trust refers to an agreement involving the purchase of a portfolio of assets while issuing unit shares to investors. Widely held fixed investment trusts fall into two categories: widely held mortgage trusts and non-mortgage widely held fixed investment trusts.
Widely held fixed investment trusts are structured as grantor trusts, which means the grantor is also a beneficiary of the trust. Under these conditions, the Internal Revenue Service (IRS) requires the grantor to pay taxes owed on income generated by the trust, even if the distributions are not made to the grantor. This happens when a widely held fixed investment trust (WHFIT) is established by investors.
As indicated earlier, WHFITs are classified as pass-through investments for income tax purposes. The parties involved in the creation and maintenance of a WHFIT include:
Generally, WHFITs take one of two forms:
qualified terminable interest property trust, qualified subchapter S trust, intentionally defective grantor trust, electing small business trust