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What Is a Naked Trust?

A naked trust, also known as a bare trust, is a simple, straightforward arrangement where a trustee holds assets for a beneficiary without any additional obligations or powers. The trustee's role is purely administrative, ensuring the beneficiary receives the trust's assets outright upon reaching legal age. Intrigued? Uncover how a naked trust could impact your financial planning journey.
Alex Newth
Alex Newth

A naked trust is a type of trust account through which beneficiaries receive funds with relatively few conditions. It starts with the trustor making a naked trust account and relinquishing control and ownership of all funds placed in the account. While the beneficiary is aging, the trustee is responsible for ensuring the trust account is taken care of and later distributed, but he has very little power over the account. When the beneficiary turns 18, he can claim everything in the account. This tends to be the simplest of all trusts, because age is the only condition.

To start a trust account, a trustor must have assets to pass on. These assets can be property, ownership of items, money or financial instruments; as long as the assets are worth money, they can be added to the naked trust. When the trust is made and the trustor places assets into the account, he loses all ownership rights to the assets. This means, even if the trustor changes his mind about passing on the assets, it is too late to reclaim them.

Real estate can be included in a naked trust.
Real estate can be included in a naked trust.

During the time between when the trustor starts the naked trust and the beneficiary reaches the necessary age, a trustee is charged with ensuring the integrity of the account. The trustee must watch the account and, when the beneficiary can claim the assets, the trustee also must distribute them. In between, the trustee has little power over the assets and can only perform routine administrative tasks concerning the assets.

The beneficiary is the person receiving the items in the naked trust, but only once he is 18. Once the beneficiary is of age, he is able to claim ownership of all the assets with a relatively small amount of paperwork. Along with owning the assets, the beneficiary can use them however he wants without supervision.

Compared other trust accounts, the naked trust is the simplest and easiest to establish. The trustee has to perform very little work, and his job is complete once the beneficiary is 18 and retrieves the assets. There is only the age requirement, so the beneficiary has to do very little to gain the assets, and less paperwork also is involved. The assets also can be used for anything, which makes it easy for the trustee and beneficiary to move forward after the trust is claimed.

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    • Real estate can be included in a naked trust.
      By: Galina Barskaya
      Real estate can be included in a naked trust.