Master Trust Agreement: What Is It and How Does It Work?

A master trust agreement is a legally binding arrangement that allows a trustee to manage multiple trusts simultaneously. Simply put, it is a trust created to manage other trusts.

This type of agreement is popular among companies that offer employee benefit plans such as pension, profit-sharing, and 401k plans. A master trust agreement allows these plans to pool their assets together, thus reducing administrative costs and increasing investment options.

How Does a Master Trust Agreement Work?

A master trust agreement is typically set up by a financial institution that acts as the trustee. The financial institution will create the master trust agreement, which defines the terms and conditions governing the trust. Once the agreement is established, each participating trust will transfer its assets to the master trust, which then manages the assets on behalf of the individual trusts.

The trustee of the master trust is responsible for managing the assets, making investment decisions, and ensuring compliance with all legal requirements. The trustee is also responsible for maintaining separate accounting records for each participating trust, which allows for easier tracking of each trust`s assets, liabilities, and investment returns.

Benefits of a Master Trust Agreement

One of the primary benefits of a master trust agreement is cost savings. By pooling assets together, participating trusts can take advantage of economies of scale, which means they can reduce administrative costs and access more investment options than they would be able to on their own.

Another key benefit of a master trust agreement is increased flexibility. Since each participating trust maintains separate accounting records, they can customize investment options based on their unique needs and risk profiles.

Master trust agreements also offer additional protections for plan participants. Since the trustee is responsible for managing the assets, participants receive an added layer of security knowing that their retirement savings are being professionally managed by a qualified financial institution.

Final Thoughts

A master trust agreement can be a valuable tool for companies that offer employee benefit plans. By pooling assets together, participating trusts can reduce costs and access more investment options, while plan participants benefit from increased flexibility and added protections.

If you are considering a master trust agreement, it is important to consult with a qualified financial advisor who can help you navigate the complex legal and financial requirements of this type of arrangement.

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