A voluntary trust is a type of living trust created during the lifetime of the trustor (the person who creates the trust). This trust is also commonly known as an inter vivos trust. Unlike testamentary trusts, which only take effect upon the trustor’s death, voluntary trusts are established and operational while the trustor is still alive.
Defining a Voluntary Trust
A voluntary trust, or inter vivos trust, is a legal arrangement where the trustor voluntarily transfers assets into a trust for the benefit of certain beneficiaries. The trust is managed by a trustee, who has a fiduciary duty to handle the trust assets responsibly and in the best interest of the beneficiaries.
Functionality of Voluntary Trusts
Trustor’s Role
The trustor initiates the voluntary trust by transferring assets into it during their lifetime. This can include cash, securities, real estate, or other valuable property.
Trustee’s Duties
The trustee administers the trust assets according to the terms set forth in the trust document. This involves managing the assets, making distributions to beneficiaries, and adhering to the fiduciary responsibilities.
Beneficiaries
Beneficiaries are individuals or entities that receive benefits from the trust. The trust document specifies who the beneficiaries are and what their entitlements include.
Types of Voluntary Trusts
Revocable Voluntary Trust
A revocable voluntary trust can be altered or dissolved by the trustor at any time. This flexibility allows the trustor to make changes in response to changing circumstances.
Irrevocable Voluntary Trust
An irrevocable voluntary trust cannot be modified or terminated once it is established, except under certain legal conditions. This type of trust can provide tax benefits and asset protection.
Example of a Voluntary Trust
Consider Jane, who decides to create a revocable voluntary trust to manage her assets and ensure they are distributed according to her wishes. She transfers her savings account, a portfolio of stocks, and a rental property into the trust. Jane names her two children as beneficiaries, with the stipulation that they receive equal distributions from the trust upon her passing. She remains the trustee, maintaining control over the assets, with a successor trustee named to take over in the event of her incapacity or death.
Historical Context and Applicability
Voluntary trusts have long been used as a tool for estate planning, allowing individuals to manage their assets efficiently and ensure their wishes are fulfilled. Their popularity has increased due to the flexibility they offer in managing and protecting assets while still providing potential benefits like avoiding probate.
Comparisons and Related Terms
Voluntary Trust vs Testamentary Trust
Unlike a voluntary trust, a testamentary trust is created as part of a will and only becomes effective upon the death of the trustor.
Living Trust
A living trust is another term for a voluntary trust, emphasizing its establishment during the trustor’s lifetime.
FAQs
What is the primary benefit of a voluntary trust?
Can a voluntary trust be changed or revoked?
Who manages the assets in a voluntary trust?
References
- “Trusts: Common Questions” - EstatePlanning.com
- “Understanding Living Trusts” - Nolo Press
- IRS: Types of Trusts and Their Tax Implications
Summary
A voluntary trust provides a flexible and effective way to manage and distribute assets during the trustor’s lifetime and beyond. By understanding the roles of the trustor, trustee, and beneficiaries, individuals can utilize this estate planning tool to meet their financial and personal objectives.
