Wasting Trust
Candlefocus EditorUnlike a traditional trust fund, which can act as a secondary income source, the funds in a wasting trust decrease in asset values, leading to the fund eventually being depleted. This type of trust can be used to fund a pension or serve as an inheritance.
A further example of a wasting trust is a closed-end fund. This type of fund involves a single investment manager who is responsible for the fund’s investments and assets. The fund’s assets also deplete over time and when the fund is depleted, it is closed and the assets are no longer available to the investors.
When a wasting trust is set up, it will have a certain amount of assets. These assets must be invested appropriately and managed with care in order for the trust to be successful. If there are too many losses or if the assets are managed improperly, the trust could be depleted before all the payments have been made.
The trustee of the fund has the responsibility of making sure that funds are being paid according to the wishes of the trust, but they also have the challenge of ensuring that enough assets remain to pay out in the future. This spurs the trustee to consider more conservative investment strategies in order to preserve the funds remaining in the trust.
When a trustee of a wasting trust sees that funds are running low, they may freeze all contributions. This will halt contributions to the trust, but it will also ensure that the remaining funds can be paid out more evenly. It is up to the trustee to weigh the potential risks and rewards of continuing to receive contributions.
Wasting trusts can provide financial security to those who enact them, but they require careful consideration and management. As the funds in the trust dwindle, it is important for the trustee to balance the demands of the trust with the trust's ability to pay for future needs. It is the trustees’ responsibility to make sure that the trust is able to meet all of its financial obligations with increasing efficiency as the funds decrease.