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As adults, trust fund babies often face the limitations of complicated trust structures or find themselves the recipients of an incomprehensible amount of money with no strings attached, and no rules to follow or practical experience in money management.  

Who is a trust fund baby?

Trust funds are often baby’s first gift from a financially savvy grandparent. These beneficiaries are commonly referred to as trust fund babies and the name sticks as the years slide by.

“That guy is a trust fund baby…he doesn’t need to work…he’s just going to law school to learn how to protect his inheritance when the time comes.” Urban Dictionary

Many trust fund babies are in their twenties. Reaching a milestone age, such as 21, often triggers a first lump-sum payment. Wealthy parents, grantors, set up these trust funds so their children won’t have to worry about income. Even if the kids’ early lifestyle wasn’t always overtly affluent, they enjoyed extras that many of their friends didn’t.

I always went to private schools. Still, I don’t think we had an extravagant lifestyle — both my parents worked hard, and I got hand-me-downs from my older siblings. I mostly became aware of our financial status because my friends’ parents made comments about it.” Anonymous

“The first car I ever drove as a 16-year-old was a BMW x5…Our other neighbors have a Bentley. A house two blocks from us has a helicopter pad on the roof. Etc.” Nicholas

As trust fund babies came into inheritances, many found their funds under the care of a trustee selected by their parents. For many of these young adults, this is a world in which they are ill-prepared to navigate.

“When I was 25, my uncle, who was the trustee of this fund, agreed with my older siblings to give us control of it. I was sent a physical check for about $400,000, and that was crazy. Looking back, I feel so stupid.” Anonymous

“Because you have access to the best everything, there are no excuses. If you fail, it’s YOUR fault. Not the teacher, not your parents, not your peers, not the environment, nobody except you.” Nicholas

Who sets up these trust funds?

Typically, trust funds are set up by parents and grandparents for purposes such as covering the cost of education or providing one or multiple lump-sums when the child reaches a certain age.

In some cases, these assets remain tightly controlled in funds loosely defined as dynasty trusts. They manage vast sums of money involving family wealth and extended business and investment assets. Broad goals of this type of trust include protecting and growing large amounts of money while avoiding estate and other tax liabilities. Dynasty trusts typically allow many beneficiaries to live well with little to no involvement in trust management.

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My parents didn’t discuss money when we were young. Then, when I was 12, they got divorced, and as part of the proceedings, my dad set up a trust fund for me and my siblings. From then on, even before I knew the specifics of what it was, I was aware that there was something coming my way.” Anonymous

“The day I graduated college, I was off my parents’ payroll. They made it clear for a long time, and I did my best to prepare for it–but it is impossible to prepare for that kind of drastic change.” Nicholas

What dangers do trust fund babies face?

The number one financial danger is that fund assets cease to exist. Whether this is anticipated or is the result of beneficiary mismanagement, fiduciary failure, or criminal activities, the consequences can be painful to devastating.

My mom doesn’t come from wealth, and she always tried to talk to us about the importance of saving, whereas my dad was more like, ‘Live your life. Go spend it. Travel.’ ” Anonymous

At 17, Allen’s estranged father died, giving him access to a sum “below $5 million” when he turned 18. He quickly burned through it. “I was very irresponsible,” he says. In just five years, he found himself in a transitional housing program in New York City — essentially homeless. New York Post

“Yes, I realize I have been given a lot more than other people in life—but it has always been on me to do something positive with it. But, I also want to acknowledge that getting to where I am now was not easy. It’s still not easy. It’s actually very difficult saying no to the silver platter.” Nicholas

Other problems, ranging from mental to physical issues plague beneficiaries and their families. Trust fund babies often deal with feelings of loneliness and guilt, never quite fitting in with the 98% who don’t understand the world of trust funds. A new problem surfacing is the Millennial’s reaction to the make-up of their portfolio, and the disconnect they have with the values and interests of some of these entities.

How to best protect your trust fund baby?

Through a holistic approach, we handle generational financial management to coordinate personal and business finance, tax management, and retirement planning. For more personal issues, we’re available to participate as you work with your other professional providers. Our goal is to advise and assist you from a financial due diligence perspective.

Hard-earned generational personal and business wealth can be wiped out if your legacy planning doesn’t provide protection and education for you, your trustees your beneficiaries.

I can help you protect your trust fund baby.
Contact me.
479-478-6831
To schedule an appointment with me.
Click here

Babies born this year who receive that trust fund first gift from the Grams will be among heirs with a combined $60 trillion in assets set to pass between generations during the next 25 years. This astonishing amount of wealth movement may have very little continuity, considering that only 13% of affluent investors report working with the same advisor whom their parents used.

The bottom line

I can become your CPA tax specialist and financial business and life goals adviser, and you can have the control you need and want.

Call us at 479-478-6831 Use my Calendly Page (it’s easy) to set an appointment, or you can email us.

I earned my reputation as The Radical CPA

You may also be interested in:

Why pay ALL those legal taxes?

The 2% as told by Anonymous

Nicholas’ 1% Story

NY Post Article

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