Equipment Trust Law and Legal Definition

Equipment trusts are a type of financing mechanism extensively used by railroad industries in which a trustee and the railroad together buy equipment from a manufacturer, with the trustee providing most of the purchase price. The trustee then leases the equipment to the railroad, which pays a rental fee comprising interest, amortization for serial retirement, and the trustee's fee. Title to the equipment, is held by a trustee and is managed until the notes are paid off.

Many Rail road companies prefer using this because of the tax benefits involved. As the asset is not officially owned by the company while they are still paying for it, it is not considered property of the company and taxes are not owed on it.