DEFINITION of 'Naked Trust'

A straightforward type of trust into which a trustor transfers assets (money or property) in order to pass them on to beneficiaries. The initial owner of the assets (the trustor) loses all control over them once they are placed in the trust. The trustee has only nominal control of the assets in the trust. The trust's beneficiary has absolute entitlement to the assets once he or she turns 18.

Also known as a "bare trust," "dry trust" or "passive trust."

BREAKING DOWN 'Naked Trust'

This estate-planning tool is commonly used by parents or grandparents to transfer assets to children or grandchildren. The college financial-aid implications of putting money into a naked trust for children should be considered before establishing the trust.

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