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What is a trust fund, how does it work?

Some of these rich kids on here talk about their "trust funds" - what exactly does a trust fund mean, how do they get it? Is it something they just keep getting and don't work for and is it a lot?

Reply 1

elenazerr

A trust fund is an investment vehicle or a set of investments that at some specified date in the future provide an income to a "beneficiary" - the person who receives the income.

Trust funds are set up for various reasons - they aren't always for "rich kids" as you put it. For example, severely disabled children who have received compensation might have such a fund.

They come in all shapes and sizes and there is no specific amount, it will depend on how much has been invested, how long it runs for and the terms of the Trust. A typical model for children is that parents, grandparents or other relatives accumulate investment in a Trust for the children of the family. Eventually at for example age 18, some income would be paid to the children on a monthly basis perhaps. They might get an increase at a later age such as 21 or 25 if more money has accumulated in the investment. Some funds are structured to help a young beneficiary with specific lump-sum payment needs like university tuition fees or a payment for a house mortgage deposit, etc. Some Trusts are managed by professionals such as Trust Companies or banking institutions on behalf of (typically) well off families or families determined to save a good sum for a child's university education.

Generally young people or young adults who receive an income from a trust fund don't have to work to get the income - their work would be to sign some papers - but a lot of families lay down conditions for teenagers or young adults in this fortunate position by stipulating that they must obtain a degree or do a part-time job at least in addition to their income. This type of thing is less strongly enforced for older people.

Rich kids often do have trust funds and they can be very opulent at times, but those are few and far between - most are of middling size and the monthly income might vary between a few hundred to a few thousand.

Reply 2

emmanottinghil

12

My grandparents set up a trustfund for myself, my brother and sister and my cousins when each of us were born. They and my parents invested money in it each year and it has grown steadily. On my 18th birthday i was given all the details - i had to sign papers and give my bank account and then the money starts arriving in my account each month. For me it's a little variable but is typically £2700 a month. It will increase when i am 21 and i will also receive "presents" from the trust, one or two of them substantial. It feels very comfortable and gives me the security i need to know that i can do things and advance without being too worried about day to day worries of shortage of cash. I don't have to work for mine but there is an expectation in our family that we will succeed academically. After i graduate it will be up to me how i wish to live. It's a nice feeling having it - when i heard all about it at 16 i felt a sort of warm greedy glow - but i also realise others don't have the same and want to use it well.

Emma

Reply 3

Ocassus

12

We have a trust fund set up to pay us triple whatever salary we earn until depletion after both my parents have deceased until depletion. The reasoning behind it is is that if we are not earning money, we will get not a penny from them, but at the same time, it allows us to choose a line of work that perhaps isn't so well paid but still live in a more comfortable lifestyle....

Its better than just having your parents pop your clogs and have a large lump of cash suddenly hit you in the face. :dontknow:

Reply 4

markhass

OP

Wow - how incredibly gobsmackingly cool for you both. Wish I was you. Do you feel like you are spoilt or does it just seem normal to you?

Reply 5

emmanottinghil

12

I think the time for me that it's real is when i go to a cash machine and withdraw £200 - the thought, "oh - i didn't have to work for that" - that can feel pretty spoilt, yes. I don't normally feel that way though, more like it's because i was cherished by my grandparents and parents, so it's a nice feeling. I am realistic enough to understand that it's a highly privileged position to be in. I know other kids in my area who also have "trust funds" - some considerably more than me. Some think about it, others are more kind of entitled and just assume it's natural because of their family background.

Reply 6

Oneoflifes

LOL, trust fund baby. Nice for you though - your family sound like very smart people but perhaps it's a bit too nice for you? I mean, do you not think you should have to do a job to help you through college like the rest of us? I'm probably just jelly. You mentioned "presents", what else do you get besides your income? What will it go up to when you are 21?

Original post by emmanottinghil

I think the time for me that it's real is when i go to a cash machine and withdraw £200 - the thought, "oh - i didn't have to work for that" - that can feel pretty spoilt, yes. I don't normally feel that way though, more like it's because i was cherished by my grandparents and parents, so it's a nice feeling. I am realistic enough to understand that it's a highly privileged position to be in. I know other kids in my area who also have "trust funds" - some considerably more than me. Some think about it, others are more kind of entitled and just assume it's natural because of their family background.

Reply 7

emmanottinghil

12

I won't say too much more specifically, because i was replying to the questioner and showing what it's about for me rather than seeking to make people "jelly" as you put it. As to it being "too nice" for me, i guess it's hard for me to tell - i kind of expected to be well off to some extent which is i know a bad attitude to have, but if you lived in my family you would see why. It is obviously a very nice thing for me to have and i'm grateful. Sometimes i feel a little guilty over it but i think as long as i keep a working attitude and don't just depend on it and use it well, it will work in my and other's favor. Other times when i can just have nice things on tap when i want them and know that will just continue for me with no effort needed on my part, i feel very spoiled.

I do work anyway - i did a job through much of my gap year working in a foundation on charity projects. I will study hard. Once past that, not sure what i want, but it will involve work. Presents will be as i say a lot but i won't say how much - just that i will get a house given to me and also some pretty large cash amounts as i get older. Not sure yet how i will use those. When i am 21 my regular income will rise to about £4000 a month i think, although it could be more or less with the economy.

Emma

Original post by Oneoflifes

LOL, trust fund baby. Nice for you though - your family sound like very smart people but perhaps it's a bit too nice for you? I mean, do you not think you should have to do a job to help you through college like the rest of us? I'm probably just jelly. You mentioned "presents", what else do you get besides your income? What will it go up to when you are 21?

Reply 8

Erich Hartmann

13

There are many reasons for trust funds, one of the main reasons for it is it isn't subject to inheritance taxes.

The other reason is many testators opt to do a trust instead of giving out a lump sump payment is simply because giving an 18 year old £500k may see £500 left after a year. You never know what that 18 year old would buy, for all you know he or she would binge it on a trip round the world and a fast car that may end up killing him. Where it is given from a trust, you get to stagger the payments and generally if it is properly invested it can go on for decades while still being beneficial to the beneficiary.

My late maternal grandfather did set up some trust funds for most of his grandchildren and children, I didn't get one because he opted to give me a lump sum before he passed on, together with all his children. Can see the vast difference between those who received a trust and those who didn't, many who got a lump sum had all since squandered it off.

I've also set up 3 trust funds, 1 is an educational trust fund that would provide 2 of my kids for their university tuition fees as I foresee in 15 years time when the eldest one goes to university tuition fees would be at least £25k per year. The other fund is meant to provide the 2 with sufficient living expenses when they go to university. The final trust fund is meant for my wife in case something happens to me, so she could continue to educate our children and also to ensure they grow up without worrying where their next meal will come from.

What is a trust fund, how does it work?

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