Naked Trust

World’s best corporate team-building exercise. Or the world's most unpleasant. It depends on your coworkers’ overall fitness levels.

When you think of trusts (as in “trust fund baby”), the naked trust structure probably comes to your mind first. (We know...in any situation, the naked version comes to your mind first; in this case, that's actually appropriate.)

Basically, it works like this: you put assets in a trust. Then, at some predetermined point in the future, those assets transfer to your designated beneficiaries. It's a vehicle to pass assets on to someone else, making this form of trust especially useful in estate planning.

You hate your kids. But you really love your grandchildren. You'd rather your grandkids get all your assets when you die...but you're worried that they will be too young when that happens. So you put everything in a naked trust. It's set up so that each grandkid gets their share when they turn 18.

It's called a "naked trust," or sometimes "dry trust" or "passive trust," because, structurally speaking, the trustee doesn't have a lot to do. There's not a lot of adornment to the process. The trustee just has to give the assets over to the beneficiary at the proper time.