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Pros and Cons of Retirement Trust Funds

Retirement Trust Funds Offer Tax Advantages And Loss of Control

A retirement trust fund is a trust fund set up to support one or more people through their retirement.  The term trust fund means that the assets are held in trust and controlled by a third party called a trustee.  When you create a retirement trust fund, you donate money, property or other assets to the fund and establish the fund for the benefit of one or more primary beneficiaries.  The fund is set up with rules and the trustee uses those rules to manage the assets in the fund and make disbursements to the beneficiaries according to the rules.  The retirement fund can also name secondary beneficiaries with different rules in the case of the primary beneficiary's death.

Advantages of Retirement Trust Funds

The main advantage of creating a retirement fund trust is that the assets in the trust are no longer under your name.  This has two advantages.  First, if you have a lot of assets under your name, you may not be eligible for many government assistance programs.  By transferring assets to a trust, you may become eligible for some of these programs.  Also, by transferring the assets you protect yourself from some potential large expenses.  For example, disability or long term care assistance is usually only offered to people that do not have any assets left.  By transferring your money to a trust you safeguard from burning through your assets too quickly on one of these types of expenses.

A final advantage of creating a trust is that it may be easier to transfer the assets (including property and securities) to heirs, as you can avoid.  The assets can be transferred per the bylaws of the trust, and then the trust can be dismantled at the time of death.

Disadvantages of Retirement Trust Funds

The disadvantages to creating a retirement trust account is that, in order to get the advantages, the trust has to be irrevocable.  That means that if the bylaws of the trust are not set up properly, they cannot be changed.  And since it is very difficult to plan for the future and your children's future, it is entirely possible that the trust not function exactly the way you had planned.

Another disadvantage is that once you've transferred the assets, you no longer control them.  If you change your mind and want the assets back its too late.  Not being in control of your assets can be difficult, especially if you're used to investing your own money and managing your entire estate.  The lack of control can be very unsettling.

In conclusion, the choice to create a retirement trust fund may or may not make sense for you.  If it looks like something you'd be interested in, talk to a financial planner or attorney to further explore the pros and cons for your specific situation.


See Also:  Retirement Planning Advice