Trust fund babies. This term is often associated with an image of privileged, spoiled, young people who live off of their rich parents.
All too often, you’ll see a couture-clad 20-something posting a picture of themselves jetting off to somewhere exotic on social media. With so much poverty and disparity in the world, this can come off as tone-deaf and downright upsetting. Our society loves to hate on them, and in some cases, it’s rightfully so.
However, do all trust fund babies deserve to be associated with this negative image? Keep reading to find out why you shouldn’t be so quick to judge an individual with a trust fund, and why trust funds are being established by more people than you might think.
What is a Trust Fund?
How Does a Trust Fund Work?
Why Trust Funds are Becoming More Common
How to Set Up a Trust Fund
What Is A Trust Fund?
A trust fund is a legal vehicle that’s used to hold and manage assets, including property, to benefit an individual. In Estate Planning, it’s commonly used to determine how assets will be managed for the time being, and then ultimately passed along. Most commonly, you’ll see a parent set up trust funds for their children, or a grandparent for their grandchildren.
You can also establish a trust fund to benefit yourself! This knowledge isn’t as commonplace, but you can, for example, set up a trust fund that you can use in retirement. Setting up a trust fund offers benefits such as:
Protection of your assets
Pays for education expenses
Option to transfer large sums of money
Enjoy certain tax advantages
What Is A Trust Fund Baby?
A trust fund baby refers to someone whose parents created a trust account, which they benefit from. The term “trust fund baby” has a negative connotation, as it’s associated with the stereotype of a spoiled individual who doesn’t have to work. In reality, individuals with a trust, a trustor, often do work, and won’t advertise that they have a trust fund.
How Does A Trust Fund Work?
Trusts are made up with three roles: the grantor, the trustee, and the beneficiaries. The grantor is the person setting up the fund, the trustee is the person who manages the assets in the trust, and then the beneficiaries are those who benefit from the trust when they meet any eligibility requirements.
A trust fund can be made up of a wide array of assets, and it’s up to the grantor to decide how they want to structure it. Trusts can be made up of assets such as :
Cash
Stocks
Mutual Funds
Bonds
Real Estate
Other valuable assets
Setting the terms of the Trust is an important aspect of estate planning. The guaranteed more decide how they want their assets to be distributed, to whom, and when those beneficiaries will become eligible to benefit from those assets. In the case of trust funds, you typically see the trustor having to meet a certain age before they can withdraw limited monthly or annual amounts from their trust.
Another important decision the grantor must make is in appointing the trustee. The trustee could be a wealth manager, for example, or a trusted family member who can remain relatively impartial. They have an important job of managing the assets in the trust, and ensuring that the assets are distributed according to the terms that have been set up.
Types Of Trust Funds
There are many different types of trusts, but they can generally be grouped into two broader categories:
Revocable trusts
Irrevocable trusts
Revocable trusts are those for which the grantor keeps the right to change the terms of the trust at any time. Irrevocable trust, on the other hand, cannot be modified by the grantor.
It’s also good to know the difference between trusts that are living to testamentary. Living trusts are those that are funded during the grantor’s lifetime. Testamentary trusts are created upon the grantor’s passing, based on terms they set up in their Will.
Why Trust Funds Are Becoming More Commonplace
Contrary to the stereotype, trust funds are becoming increasingly commonplace. More and more individuals, regardless of their income level, are realizing that Trusts are an advantageous tool. Not only can you make sure your loved ones have a layer of protection, it will be on your terms.
People are also becoming and more aware of the financial advantages of setting up a trust. First, assets safeguarded in a trust typically won’t have to go through probate. This makes the distribution of your assets so much more seamless. What’s more, Trusts often provide tax benefits, such as helping minimize estate taxes.
Last but not least, online platforms like Trust & Will have made the process of Estate Planning (a.k.a. setting up your Trust and Will) much easier, faster, affordable, and accessible. With tools like this, there’s nothing holding you back from setting up a Trust to protect your loved ones and future generations, no matter how big or small.
How To Set Up A Trust Fund In 5 Simple Steps
Perhaps you don’t want a trust fund baby on your hands, but you’ve realized that you want your baby to be safeguarded by a trust. Where to begin? The good news here is that the process is surprisingly simple, especially with accessible platforms like the one offered by Trust & Will. The hardest part will likely be decision-making, but we’ve provided some prompts to guide you.
Setting up a trust fund requires 5 key actions:
Make Key Decisions
Declare The Trust
Register With The IRS
Transfer Your Assets & Fund the Trust
Manage The Trust
1. Make Key Decisions
As we forewarned, you’ll have to make some critical decisions on how to structure your trust. Where assets and family become involved, these decisions can be difficult to make. We recommend taking the time to think through some of these prompts slowly and carefully so that you’ll feel confident moving forward:
What assets do I want to put into the trust fund? (Cash, stocks, bonds, mutual funds, personal property, real estate, etc.)
Who will be my beneficiary or beneficiaries?
Who will oversee my trust fund and manage its assets (trustee)?
How do I want my assets to be managed and invested?
How and when, and how frequently, will my beneficiaries receive benefits from the trust fund?
Do I want to be able to change the terms of the fund (revocable vs. irrevocable)?
2. Declare The Trust
Once you’ve made your key decisions, it’s time to set up the trust fund. Traditionally, grantors would work with an attorney to create a declaration of trust. In other words, this is a legal document that establishes the trust. Again, Trust & Will makes it fast, easy, and affordable for you to establish a Trust online.
3. Register With The IRS
Treated like a business, a trust fund needs an Employer Identification Number (EIN). This is necessary because if the trust earns any income, such as dividends, the trust itself must file its own taxes. You can get an EIN by registering the trust online on the IRS website.
4. Transfer Your Assets
Next, it’s time to transfer assets into your trust fund. In Step 1, you should have determined what assets you wanted to use to fund the trust, so you can work your way down your list. If you want to play real estate into the fund, then you’ll need to perform a transfer of title. If you want to transfer stock, then you’d change the ownership title on your stock certificate. Last but not least, you can fund the Trust with cash by opening a bank or brokerage account, and then make deposits.
5. Manage Your Trust
After you’ve completed the first four steps, the heavy-lifting has been taken care of. You want to wrap up by setting a system to manage your records and paperwork. This can include financial records and legal documents. Make sure to keep these records updated, organized, and accessible so you can easily pass them on.
At the end of the day, yes, people who fit the trust fund baby stereotype are definitely out there. However, there are so many individuals who benefit from a trust fund but work for a living, and live a humble lifestyle. It doesn’t mean that they need to live a life of excess. To the contrary, you can set up terms to your trust that can prevent them from doing so. After all, trust funds are a powerful tool that you can use to safeguard your children and other loved ones, in the way you want.
Not sure where to get started? Call one of our member specialists today! Our platform makes it super easy and affordable to set up a Trust, and that way, you can rest easy knowing that you are empowered over your own life.
Trust Funds: Understanding the Basics
A trust fund is a legal vehicle used to hold and manage assets for the benefit of an individual. It is commonly used in estate planning to determine how assets will be managed and ultimately passed along [[6]]. Trust funds are often set up by parents for their children or by grandparents for their grandchildren [[6]]. However, it is important to note that trust funds can also be established to benefit oneself, such as for retirement purposes [[6]].
How Trust Funds Work
Trusts are made up of three key roles: the grantor, the trustee, and the beneficiaries [[7]]. The grantor is the person who sets up the trust fund, the trustee is responsible for managing the assets in the trust, and the beneficiaries are the individuals who benefit from the trust [[7]]. Trust funds can consist of various assets, including cash, stocks, mutual funds, bonds, real estate, and other valuable assets [[8]].
The terms of the trust are crucial in estate planning, as they determine how the assets will be distributed, to whom, and when the beneficiaries will become eligible to benefit from those assets [[8]]. For example, the trustor may set a certain age requirement before the beneficiaries can withdraw limited monthly or annual amounts from the trust [[8]]. It is also important for the grantor to appoint a trustee who can effectively manage the assets and ensure they are distributed according to the terms of the trust [[8]].
Types of Trust Funds
Trust funds can generally be categorized into two broader categories: revocable trusts and irrevocable trusts [[9]]. Revocable trusts allow the grantor to change the terms of the trust at any time, while irrevocable trusts cannot be modified by the grantor [[9]]. Additionally, trusts can be either living or testamentary. Living trusts are funded during the grantor's lifetime, while testamentary trusts are created upon the grantor's passing based on terms established in their will [[9]].
The Increasing Popularity of Trust Funds
Contrary to the stereotype, trust funds are becoming increasingly common among individuals of various income levels [[10]]. People are realizing the advantages of setting up trust funds to protect their loved ones and ensure their assets are distributed according to their wishes [[10]]. Trust funds offer benefits such as avoiding probate, providing tax advantages, and allowing individuals to have control over how their assets are managed and invested [[10]].
The availability of online platforms, like Trust & Will, has made the process of setting up trust funds and estate planning more accessible, affordable, and convenient [[10]]. These platforms provide tools and resources to guide individuals through the process of establishing a trust fund, making it easier for them to protect their loved ones and future generations [[10]].
How to Set Up a Trust Fund in 5 Simple Steps
If you are considering setting up a trust fund, here are five key steps to guide you through the process:
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Make Key Decisions: Determine the assets you want to put into the trust fund, select beneficiaries, choose a trustee, decide how you want your assets to be managed and invested, and consider whether you want the trust to be revocable or irrevocable [[11]].
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Declare the Trust: Create a legal document, known as a declaration of trust, to establish the trust fund. This document outlines the terms and conditions of the trust [[11]].
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Register with the IRS: Obtain an Employer Identification Number (EIN) for the trust fund. This is necessary if the trust earns any income and needs to file its own taxes. You can register the trust online through the IRS website [[11]].
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Transfer Your Assets: Transfer the assets you have chosen to fund the trust into the trust fund. This may involve changing ownership titles, performing transfers of title for real estate, or opening a bank or brokerage account to deposit cash [[11]].
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Manage Your Trust: Once the assets have been transferred, establish a system to manage your trust fund. Keep financial records and legal documents organized and updated for easy access. This will ensure that your wishes are carried out effectively [[11]].
Remember, trust funds can be tailored to meet your specific needs and goals. They are a powerful tool for safeguarding your loved ones and ensuring your assets are distributed according to your wishes [[11]].
In conclusion, trust funds are not solely associated with the negative stereotype of "trust fund babies." They serve as a valuable tool in estate planning, allowing individuals to protect their assets, provide for their loved ones, and have control over how their wealth is managed and distributed.
