A trust that is irrevocable for a set amount of time, after which it becomes revocable. Or, in plain English, you give your money (or rather, the income from the assets you place in trust) to someone else -- but only for a while.

These were traditionally seen as tax shelters; while assets were in the trust, taxes on income from the trust were paid at the tax rate that applied to the beneficiary. Since the most common beneficiaries are children or college students, the tax savings could be significant.

The most famous type of reversionary trust is the Clifford trust, which lasts a minimum of ten years and one day. As of March 1, 1986, any reversionary trust set up for a time period shorter than 32 years is taxed at the tax rate that applies to the creator of the trust, not the beneficiary*. This has removed most of tax advantages of the Clifford trust, and so it has become somewhat less common.

While in the reversionary trust assets are not taxed, although income from these assets is. To the best of my knowledge, you cannot set up a reversionary trust shorter than ten years, although if the beneficiary dies the trust will revert to the donor.

This is a type of inter vivos trust.
Compare to Grantor trust, Irrevocable trust, Revocable trust.

Reversionary trusts may sometimes be referred to as Short-term Trusts; I do not know if this is an 'official' name for them.


* In the US. I can't speak for other countries.

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