Wasting Trust
What Is a Wasting Trust?
A wasting trust is a fund whose assets have been drained over the long haul as plan participants receive their required payouts and no new money is paid in. The term may likewise be applied to income trusts which hold draining assets, like oil and gas.
Regardless, the principle held in the trust is declining in value. The trust will keep on paying out until its assets are exhausted.
Understanding a Wasting Trust
A wasting trust holds assets after a qualified plan is frozen. That is, when the plan has stopped accepting new contributions, a wasting fund holds the leftover assets.
Companies that offer pension plans utilize a wasting trust to phase out a traditional pension plan when they switch to a 401(k) or one more type of company-supported retirement plan. The trust stays in presence sufficiently long to pay out the leftover assets, while current employees add to the new plan.
Wasting trusts are additionally common in estate planning. A will might set to the side a sum of money to be utilized by at least one beneficiaries until the money is exhausted.
The trustee may utilize part of the principal held in trust to keep up with the payments to [beneficiaries](/recipient of-trust) that are required under the plan.
Illustration of a Wasting Trust
On the off chance that a company switches its employee retirement benefit from a pension fund to a 401(k) plan, it will make a wasting trust to hold the assets in its pension fund.
The pension fund is frozen. New employee contributions are going into the 401(k) fund, not the pension plan.
The company will keep on paying its obligations to its retired employees until the funds in the plan are exhausted.
Features
- A wasting trust is a fund with declining assets.
- The wasting trust might be a private inheritance, a pension fund, or a closed-end fund.
- With new contributions to the trust frozen, the trustee of a wasting fund might be forced to dip into the principle held in trust to meet normal payments due to plan participants.
