What Is a Voluntary Trust?
Let me tell you directly: a voluntary trust is a type of living trust that you create during your lifetime, and it's also known as an inter vivos trust. It's defined as an obligation based on personal confidence that one person voluntarily accepts for the benefit of another. This contrasts with an involuntary trust, which the law creates.
Key Takeaways
Here's what you need to know: a voluntary trust is a living trust. It's also called an inter vivos trust. Typically, it's part of your estate plan.
Understanding Voluntary Trusts
You often use voluntary trusts in estate planning. With real estate, the trustee controls the property, while the trustor is the one who will receive it after it's held. The property itself is the res.
In a voluntary trust, the recipient gives nothing in exchange; it's a pure gift. This sets it apart from trusts for value, like those for purchasers or mortgagees. The opposite is an involuntary trust, which includes constructive or resulting trusts.
Sometimes, a voluntary trust just means interpersonal confidence between two people regarding an obligation. But legally, it's a formal setup that can oversee an organization's activities and finances.
Fast Fact
Many charitable and service organizations run voluntary funds to keep their operations going.
Example
Consider the Trust Fund of the United Nations Alliance of Civilizations. A special report recommended setting up this voluntary trust fund. As their website states, its main goals are to support the Alliance's projects and activities, the High Representative's initiatives, and core operational and human resources needs.
What Is a Trust?
A trust is a legal framework where a trustee holds assets to distribute to a beneficiary. You typically use it in estate planning to minimize estate taxes. You can structure it based on your goals, like how and when funds are inherited.
There are types like marital trusts, testamentary trusts (from a will), irrevocable life insurance trusts, and generation-skipping trusts for grandchildren.
A key difference is revocable versus irrevocable. A revocable living trust is changeable and lets you bypass probate but not estate taxes. An irrevocable one is permanent and often avoids both probate and estate taxes.
What Is Probate?
Probate is the legal process that recognizes a will and distributes assets of the deceased. It varies by state. As the American Bar Association notes, most proceedings aren't expensive or prolonged, despite what some vendors claim.
Why Is a Trust Better Than a Will?
A trust provides more privacy and streamlines beneficiaries receiving bequests. Unlike a will, it bypasses probate, which is public.
What Are the Disadvantages of a Trust?
A trust is usually more expensive than a will. It's more complex, requiring more steps and information from you. You must fund it with assets, assigning them to the trust, which needs a full inventory. Overall, it's complicated and demands follow-through.
The Bottom Line
A voluntary trust is a living trust. In it, or an inter vivos trust, the trustor keeps legal title of the gift to the beneficiary, even as the beneficiary has actual title, possession, and control over trust actions.
Other articles for you
Private investment funds are non-public investment vehicles that avoid soliciting retail investors and operate under specific exemptions for reduced regulations.
A Preferred Provider Organization (PPO) is a flexible health insurance plan that allows access to a network of providers at reduced rates while offering coverage for out-of-network services at higher costs.
Repatriable means the ability to move liquid financial assets from a foreign country back to an investor's home country.
Wage expenses are variable costs for hourly employee payments, distinct from salaries, and handled differently in accounting.
Wassily Leontief was a Nobel Prize-winning economist known for developing input-output analysis and discovering paradoxes in international trade.
This text is an overview of Investopedia's Business section, covering definitions, strategies, and articles on various business topics.
A normal yield curve slopes upward, indicating higher yields for longer-term bonds due to increased risk.
A straddle options strategy involves buying both a call and a put option with the same strike price and expiration date to profit from significant price movements in either direction.
Deferred annuities are insurance contracts that grow tax-deferred and provide future income after an accumulation period.
Discretionary expenses are non-essential costs that individuals or businesses can cut without affecting core operations or survival.