The Bad Rap on Trust Fund Kids
Updated: Sep 10
According to teen angst movies, trust fund kids are all spoiled rich kids. The reality is a bit different, at least when it comes to kids who benefit from their parents’ revocable trust.
What is a Trust? Why Would I Need One?
In the simplest terms, a trust is a private contract. In the context of estate planning, it’s a contract between you as the creator of the trust- often called the “grantor” or “trustors”- and you as manager of the trust- called the trustee. If you are in a committed relationship, married or otherwise, your spouse or significant other would also be a grantor and trustee.
Once you create the trust, you fund the trust by re-titling your assets in the name of the trust. For example, if you own your home, an attorney would draft a new deed and transfer the house (tax free) from you as an individual to you as the trustee of your trust.
While you are alive, you can do what you want with the assets of the trust. If you need to refinance, buy or sell a piece of real estate, you do that as the trustee. There are no restrictions on what you do. Once you pass, whomever you have named as your “successor trustee” steps into your shoes and becomes the new manager of the trust assets. However, the successor trustee is bound by a fiduciary duty to follow the instructions you leave in the agreement.
So, the trustee might be required to liquidate or transfer assets for the benefit of those you have listed in the document. The trustee may need to make periodic payments to those people. If your beneficiaries are young, the trustee may have to safeguard and invest assets until your beneficiaries reach the age you determined when you created your plan.
In sum, a revocable trust fund kid is really a type of beneficiary of a very efficient wealth-transfer tool created while you are alive to help manage things when you are gone.