What is a Passive Trust?
A passive trust, also called a "dry trust" or a "naked trust", is a trust into which a person transfers assets in order to pass them on to heirs or beneficiaries.
How Does a Passive Trust Work?
For example, let's say John Doe is in a shaky marriage and wants to make sure $1 million of his money goes to his children rather than his second wife, whom he many divorce. He puts the money in a passive trust for his children.
The children are only 10 and 8 years old, but when they turn 18, they will have access to and control over the assets. In the meantime, John's wife cannot touch the assets, and a trustee manages the money on behalf of the children rather than on behalf of John Doe.
Why Does a Passive Trust Matter?
Passive trusts are a way to ensure that beneficiaries receive assets as intended, but they also mean that the benefactor gives up control over the assets. Additionally, age is typically the only condition of a passive trust, meaning that the trustee can't withhold funds from the trust if, say, John's children do something of which he disapproves, such as dropping out of college. The children simply must be at least 18 years old to obtain full control over the money.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
With unemployment up to 8.2%, vying for a steady gig can make a job seeker feel a bit like a...
Read More →
Buffett may be among the world's richest men, but you wouldn't know it by meeting him. He wants to be liked far more than he wants to be famous, and his sense of humor is far more indicative of...
Read More →
Treasury bonds (T-Bonds) are long-term, semiannual bonds issued by the U.S. Treasury. Because they are...
Read More →
Four states are teetering on the edge of failure. These four states make up over 25% of the United States' GDP...
Read More →
In the 1930s, the U.S. government sought to boost a flagging economy by maintaining very low interest rates. Throughout the decade, consumers benefited by obtaining...
Read More →
