What is an 'Active Trust'

An active trust is a trust wherein the trustee has to take additional actions beyond passively dealing with property for the benefit of the beneficiary. An active trust is in contrast to a passive trust, or bear trust, wherein the trustee’s only responsibility is to care for and then transfer property at a predetermined time to the beneficiary. Active trusts are also referred to as special trusts.

BREAKING DOWN 'Active Trust'

An active trust is a type of trust, or a legal relationship entered into by at least three parties: the trustor, the trustee and the beneficiary, for the purposes of transferring property from the trustor to the beneficiary. In the United States, trust law varies from state to state. The National Conference of Commissioners on Uniform State Laws, a nonprofit association which promotes the adoption of uniform laws from state to state, issued the Uniform Trust Code in 2000, which dozens of states have adopted in part or in whole.

According to the Uniform Trust Code, trusts are typically arranged between a trustor and an identifiable beneficiary, but there are some trusts, like charitable or honorary trusts with no identifiable beneficiary. Charitable trusts distribute assets to charities, while honorary trusts distribute assets to things like pets, which are unable to enforce the distribution of the assets in a court of law. They are called honorary trusts because the trustee is honor-bound, but not legally required, to distribute assets according to the wishes of the trustor. 

A common form of trust is a passive trust, whereby a trustor gives legal ownership of assets like money or real estate to a trustee, who is then responsible for simply distributing those assets to a beneficiary at a predetermined date. An example of a passive trust is one set up by a wealthy individuals to assure the financial security of their descendants once they reach a predetermined age, presumably when the dependent is responsible enough to care for the assets without supervision.

Active Trusts and Sophisticated Planning 

Trustors will sometimes decide to set up an active trust, or special trust, if their wishes are more complicated. One situation where an active trust might be desirable is when a trustor wants to make sure a beneficiary can spend entrusted money only for specific purposes, or only wants the money to be distributed when certain requirements are met. 

For example, let’s say a wealthy couple wants to distribute their assets to their children, but the parents have much different political views than their children. These trustors may want to set up an active trust, which stipulates that the money can’t be donated to specific causes. Another example could be that the trustee can only distribute the money if the beneficiary meets certain goals, like graduating from college. Such trusts are active trusts because the trustee is not only required to distribute money, but also verify that the beneficiary is behaving in a certain way.
 

RELATED TERMS
  1. Trust Property

    Trust property includes assets such as securities, cash and property ...
  2. Trust

    A trust is a fiduciary relationship in which the trustor gives ...
  3. Inter-Vivos Trust

    An inter-vivos is a fiduciary relationship used in estate planning ...
  4. Beneficiary Of Trust

    A beneficiary of trust is the individual or group of people who ...
  5. Irrevocable Income-Only Trust (IIOT)

    An irrevocable income-only trust is a type of living trust often ...
  6. 5 by 5 Power in Trust

    A “5 by 5 Power in Trust” is a common clause in many trusts that ...
Related Articles
  1. Financial Advisor

    Irrevocable Trusts: New Trends You Need to Know

    Several improvements and additional provisions have been added to irrevocable trusts in recent years making them considerably more versatile than before.
  2. Retirement

    Estate Planning for Beginners: Part Three

    A primary purpose of most trusts is to provide a timetable for the distributions of assets where an outright distribution may not be warranted.
  3. Investing

    Establishing a Revocable Living Trust

    Learn how to establish a revocable living trust, an arrangement that allows you to have more control over your estate — both before and after your death.
  4. Managing Wealth

    Pick the Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
  5. Financial Advisor

    How Trust Funds Can Safeguard Your Children

    Certain types of trust funds can help to protect your assets from bankruptcies and civil actions, and can be established to safeguard your children and designated beneficiaries.
  6. Managing Wealth

    Which Retirement Plans Need a Family Trust?

    Many people think family trusts are only for the very wealthy, but if your retirement assets exceed $500,000, you may want to consider the option.
  7. Investing

    A Look Into Creating a Trust Fund With ETFs (VCIT, SDIV)

    Learn the basics of how a trust works and the two most common types. Discover how to use ETFs to fund a trust and the different strategies.
  8. Managing Wealth

    Can You Trust Your Trustee?

    Ignorance and incompetence can cost you money. Make sure your trustee is up to the task.
  9. Investing

    The Benefits of a Third-Party Special Needs Trust

    How a third-party special needs trust can help your special needs child.
  10. Financial Advisor

    5 Common Mistakes When Creating a Trust Fund for Your Child

    Trust funds are often established to protect children in the event that their parents are not able to provide for them. Here are some common errors to avoid.
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center