Qualified Trust

What Does Qualified Trust Mean?

A qualified trust is a tax-deferred retirement plan arranged by an employer for an employee.

This type of individual retirement account may provide benefits in the form of a pension, stock shares, or profit-sharing, with a required minimum annual withdrawal. For the trust to be considered valid, beneficiaries must also be named. The same care that goes into setting up life insurance beneficiary designations applies here, since errors at this stage can cause problems for heirs later.

Insuranceopedia Explains Qualified Trust

Withdrawals from a qualified trust begin after retirement, with the minimum withdrawal amount based on the individual’s average life expectancy. Annuities work on a similar premise, since they also defer taxes during the buildup years and pay income based on how long the holder is expected to live. Beneficiaries may lose the tax advantages if they withdraw funds before reaching retirement age.

A qualified trust is irrevocable, and this status remains in effect even after the owner’s death. Therefore, the administration of the trust and its assets for the benefit of the designated beneficiaries is critical.