Establishing a trust can have a big impact on your retirement planning, so you should be familiar with this term and what it means for you.
What is a trust?
A trust refers to a relationship in which there are three parties: the trustor, the trustee and the recipient. The trustor creates the trust, the trustee manages it and the recipient collects it. Having a trust protects the assets belonging to the trustor and ensures correct disbursement, which can begin whenever the trustor desires.
How it relates to retirement planning
A trust can be part of both retirement and estate planning. The trust can have one set of instructions in the event of the trustor’s death and another for while they are alive. The latter relates to retirement planning.
Here are a few examples:
Scenario One: The trustor had children later in life and will retire before they are financially independent adults. As such, their retirement planning should include providing for their children. They establish a trust that gives money to each child at a set interval so they are able to support themselves without digging into the trustor’s retirement savings.
Scenario Two: The trustor has a dependent who has a mental disability. This dependent will not be able to manage his or her own finances, but can live somewhat independently. Rather than directly managing their finances, the trustor can give the dependent the money delegated.
Scenario Three: The trustor wants to give their children funds to establish themselves, but only once they reach certain milestones. This could be marriage, a degree or a specific age. Once they hit the milestone, they gain access to the funds. This helps to avoid taxation issues that would arise if money were directly given to the child.
Working with a financial planner
Setting up a trust can be complicated. So, it should not be done without the assistance of a financial planner and possibly a lawyer. To learn more about how a trust could work for you, speak with a financial planner today.
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