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What Is a Retirement Trust Fund?

People who are planning for retirement should consult a financial planner to get advice about the best savings options.
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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 15 August 2014
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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 trust 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.

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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.

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Discuss this Article

titans62
Post 4

@matthewc23 - As far as I know, a retirement trust never gains value besides the deposits that are made into it. With something like a 401k or IRA, you are putting your money into stocks, bonds, and other investments, where your money can make large returns.

I would say that the decision to open a retirement trust is something that you should talk about with your financial planner to determine what route will help you end up with the most money. I'm not sure, but having money left in the trust at the time of death would probably lead to more issues than if the money was in an IRA or other account and included in a will.

matthewc23
Post 3

It sounds like setting up a retirement trust fund has nothing but benefits. Surely there is some sort of way that having a retirement trust fund isn't as good as having a 401k or an IRA, otherwise everyone would do it.

The article talks about being able to use a retirement fund to qualify for extra medical help. If you developed a condition and knew you were going to have large medical bills, could you pull your current savings or other retirement funds and put them into a retirement trust, or would that be found out and the government wouldn't give you the benefits?

TreeMan
Post 2

@JimmyT - I am not an expert in retirement trust funds (or any trust funds for that matter), but I know with a lot of trusts, there are certain stipulations about when money can be taken out and how much.

Since it is a retirement fund, I would assume most times there is a rule saying that the beneficiaries can't take out money until they reach a certain age. At that point, though, I'm not sure if they can take out everything, or if they are automatically given so much money every month from the account. Maybe someone else can help with that.

I think a trustee can usually be anyone who is not a relative. Obviously, you would want to pick someone who is honest, trustworthy, and who would be responsible when the time came for them to fulfill their duties.

JimmyT
Post 1

Who is usually the trustee for a retirement trust fund? Would it be someone like a lawyer, or is the trustee usually a family member or friend? What exactly is their responsibility, and how to they distribute the funds?

When the donors are still alive, do they have complete access to the money at any time, or are they special rules about withdrawing the money? Is this where the trustee would come in?

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