A retirement trust fund is a fund established for the purpose of providing people with money to pay for retirement. People can create their own retirement trust funds or they can participate in funds organized by their employers and by government agencies for the purpose of creating a mechanism for saving money for retirement and disbursing these funds when the time comes. The retirement trust fund is one among many tools that can be used to plan for retirement.
In a trust fund, an individual known as the donor establishes a fund on behalf of a beneficiary or beneficiaries. A couple might, for example, create a retirement fund where they are the donors and they are named as the beneficiaries. A third party, known as the trustee, manages the assets in the trust fund and ensures that they are disbursed as needed. The retirement fund can also name a beneficiary in the event of the deaths of the primary beneficiaries, allowing the fund to be rolled over to children, siblings, or other family members.
Establishing a retirement trust fund can have several advantages. By creating a trust fund, people officially surrender their assets and their assets are not in their names. This can create eligibility for government assistance that might not otherwise be available. People who are concerned about paying for health care, accessing disability services, and other issues can create a retirement trust fund to assure a steady retirement income without becoming ineligible for these services.
Savings plans like 401(k) plans leave the assets in the name of the person who creates the account and are counted as an asset that can exclude people from eligibility for certain government services. Paying for disability, chronic illness, and other sudden expenses in retirement can quickly eat through a carefully planned retirement fund. Having a retirement trust fund allows people to protect assets, ensuring that they will be able to support themselves and their families through retirement.
Holding assets in trust can also make transfers at the time of death easier. Assets like houses and securities can be rolled over to a new beneficiary and the trust can be dismantled, if necessary. People who are planning for retirement should consult a financial planner to get advice about the best savings options and the best way to structure the ownership of their assets. People should be aware that depending on how assets are transferred at or around death, there can be substantial bureaucratic red tape paired with financial penalties.