Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Dry Trust

What it is:

Also called a naked trust or a passive trust, with a dry trust, a person transfers assets into a trust in order to pass them on to heirs or beneficiaries.

How it works (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 may divorce. He puts the money in a dry 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 it Matters:

Dry trusts are a way to ensure that beneficiaries receive assets as intended, but they also mean the benefactor gives up control over the assets. Additionally, age is typically the only condition of a dry trust, meaning that the trustee can't withhold funds from the trust if, say, John's children drop out of college, become addicted to drugs, or marry someone John doesn't like. The children simply must be at least 18 years old to obtain full control over the money.