Voluntary trusts are a unique type of trust instrument used to create a fiduciary duty between two parties, typically to create a duty of trust or obligation to a third party. Unlike other types of trusts, voluntary trusts do not require the property or money to be transferred to a trustee or beneficiary. Rather, the trust agreement itself creates an enforceable right in the trustor (or settlor) to make decisions regarding the distribution or use of the property.

Voluntary trusts are typically entered into when an individual wishes to secure an individual or corporate financial position or interest in a particular asset. This form of trust is often used in cases where a party has borrowed money from a third party, such as a bank, a joint venture partner, or another person, and wants to have a secure interest in the asset used as collateral.

For example, a voluntary trust can be created between a party who has borrowed money and a third party who holds the security over the loaned item, such as real estate or a boat. In this case, the trustor would transfer title to the boat or house to the voluntary trust. The trust document would then create an obligation on the part of the trustor to the third party (the lender) to keep the item secure and pay the loan off in a timely manner. If the borrower defaults on the loan, the lender would have the right to reclaim the asset from the trustor.

Creating a voluntary trust also helps to protect a party’s personal assets in the event of a lawsuit. Because the beneficiary receives title to the asset, if the trustor is sued, the trustee can prevent the trustee’s personal assets from being used to pay for the lawsuit. This ensures that the trustor’s personal assets remain from any claims the opposite party may have.

The terms of a voluntary trust depend largely on the particular terms of the agreement between the parties involved. When setting up a voluntary trust, it is important to consider the tax implications of the trust, as well as any potential legal obligations involved in creating the trust.

Overall, voluntary trusts offer a unique way to secure an individual or corporate interest in an asset as well as offering the added protection of limiting liability. While it is important to consider all the implications and dangers involved when entering into a voluntary trust, they can provide a great way to protect one’s assets and interests.