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

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

    An inter-vivos is a fiduciary relationship used in estate planning ...
  3. Personal Trust

    A personal trust is one that a person creates for him or herself ...
  4. Irrevocable Income-Only Trust (IIOT)

    An irrevocable income-only trust is a type of living trust often ...
  5. Trustee

    A trustee is a person or firm that holds or administers property ...
  6. Bare Trust

    A bare trust is a type of trust that provides beneficiaries with ...
Related Articles
  1. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund, but the rules can be complex. Here's what you'll need to discuss with your lawyer.
  2. Retirement

    How To Set Up a Trust Fund If You're Not Rich

    You don't need to be wealthy to create your own trust fund. Here's why and how to go about it.
  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

    The Only 3 Reasons to Have an Irrevocable Trust

    Only put your assets in an irrevocable trust for one of these three reasons.
  5. Personal Finance

    Buying a Home in Trust

    Buying a home in a real estate trust allows for tax advantages, possibly avoiding probate court, and future family conflict.
  6. Retirement

    The Responsibilities and Liabilities of Being a Trustee

    Being named a trustee needs to be taken seriously because it comes with great responsibility.
  7. Managing Wealth

    Can You Trust Your Trustee?

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

    You’ve Created Your Living Trust, Now Fund It!

    You set up a trust with your estate planning attorney, but is it actually funded?
  9. Retirement

    Designating a trust as retirement beneficiary

    Designating a trust as your IRA beneficiary can be beneficial, but it requires proper planning to avoid problems.
Trading Center