(Forbes) Trust fund kids get a bad rap. But are they actually spoiled with silver spoons or are they savvy savers?
The term “trust fund kid” may summon thoughts of the rich kids of the internet; you know, chartering private planes and driving (or, rather, not driving) their falcon-winged Teslas. Contrary to popular belief, however, trust funds are not just for exorbitantly wealthy families. Plenty of parents set up trust funds for their children—and for a whole host of reasons.
A trust fund simply refers to funds that are held in a trust. It’s a legal entity that parents may establish to hold and safeguard assets for their children, the beneficiaries. Trust funds can potentially reduce estate and gift taxes down the line, offer some protection from lawsuits or creditors, keep properties out of probate and more.
Parents can choose to set up the trust to be dispersed when their child reaches a certain age, like 18 years old. They may opt for a payment schedule or hand over access in one lump sum.
Whatever the case, there are two types of trust funds: irrevocable and revocable (or living). Irrevocable trusts cannot be changed once they are set in stone, but they offer complete protection. Revocable trusts allow the grantor (the parent) to retain control over the trust, but it will remain subject to seizure in legal circumstances.
With that all said, here are three common misconceptions about kids of trust funds, debunked.
1. Trust fund kids all come from ridiculously rich families.
While many wealthy families do establish trust funds, not all trust funds are for children of well-to-do parents.
Regardless of their wealth status, parents may set up trust funds for their kids for a gamut of reasons like saving for college, protecting children with special needs, putting away money for a family business, continuing support after receiving a terminal illness diagnosis, establishing a line of inheritance and future-proofing of all kinds.
2. Trust fund kids have it easy.
Sure, if you are indeed part of that small percentage of people who inherit a large lump sum of money through a trust fund, it could make life easier in many ways. Trust fund babies may seldom worry about crippling student loan debt, affording down payments on homes, funding their passion projects, etc.
But, you’ve heard it before and we’ll say it again: Money doesn’t buy you happiness.
In fact, a wealth of research suggests that children born into wealthy families are more likely to suffer from anxiety and depression, as well as cope with eating disorders and substance abuse. The psychological costs of material wealth are manifold, one study suggests.
This has a lot to do with an amalgamation of high expectations, access to funds, the absence of trusted friendships or present parents, guilt for feeling mental health issues despite their fortunes (which only exacerbates mental health issues), and more.
3. Everyone who has serious money must have a trust fund.
It’s easy to peg someone as a “trust fund kid” just because their family seems to have a lot of money. Maybe they go to a good school, don the best brands, drive beautiful cars or travel endlessly. But the reality is that the number of people who actually inherit money through trust funds is very small.
In fact, a Survey of Consumer Finances report (via FiveThirtyEight) shows that of the just 1.3 percent of people who receive money in a trust fund, 73 percent of them inherit it from their parents.
In other words: Most people don’t have trust funds. But more people probably should, given the aforementioned benefits.
