Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Wasting Trust

What it is:

A wasting trust holds the assets of qualified plans when the qualified plans are frozen.

How it works (Example):

Let's say Company XYZ has a pension plan for its employees. It decides to switch everyone over to a 401(k) plan. It moves the money in the pension plan to a wasting trust, which becomes a pot of money that makes payments but no longer receives contributions (because everybody's retirement contributions are now going into the 401(k) plan).

The trust is a wasting trust because it will eventually "waste away" down to $0.

Why it Matters:

Wasting trusts don't generate much income. Their goal is to pay out until they are depleted. Sometimes, oil and gas companies put assets into wasting trusts. Wasting trusts are also common in estate planning, where people set aside money for beneficiaries to use as needed until the account is depleted.