Listen and Follow Heir Necessities: Apple Podcasts | Spotify | YouTube

The trust fund lifestyle isn't all private jets and luxury penthouses. 

In this eye-opening episode, I peel back the curtain on the realities of life as a trust fund kid. 

Discover why confusion, stress, and financial uncertainty are more common than yacht parties. 

Listen while I break down what a trust is, explore the most common challenges trust beneficiaries face, and offer practical advice for navigating the world of inherited wealth. 

Whether you're a current beneficiary or anticipating an inheritance, tune in for insights to help you understand your rights and build a more secure financial future. 

🗓️ Schedule a FREE call to talk about whatever money questions are on your mind.

Transcript:

Hey, I'm Katherine. Thanks for joining me at Heir Necessities, the podcast that turns complex financial concepts into real talk for GenX, Millennial, and Gen Z inheritors.

I'm a CERTIFIED FINANCIAL PLANNER®, a wealth manager for inheritors, and an inheritor, just like you. Each week on the podcast, I'm tackling some of the most complex issues related to generational wealth and inheritance.

If I do my job right, we're going to have some fun along the way and you are going to be able to stop managing your money by asking Google what to do.

On today's episode of the podcast, we're diving into one of the questions I get asked most. Is the trust fund lifestyle everything it's cracked up to be?

My answer to this question might surprise you.

The reality of the trust fund lifestyle

When we think about a trust fund baby, we think about private jets, trips to the Mediterranean, time spent on yachts, living a life of luxury in penthouses in New York, houses in Beverly Hills, an apartment in Paris, all that stuff. That is the reality for a very, very, very small number of trust fund beneficiaries.

The reality for most trust fund beneficiaries is complex documents they can't understand, trustees they don't get along with, and uncertainty about their financial future.

Understanding trusts and trust beneficiaries

Let's start by talking about what a trust actually is. At its core, a trust is a legal document that protects assets and it creates a relationship between the trustee who is responsible for managing and stewarding trust assets in line with the trust document and trust beneficiaries. What's important to remember is that if you are the beneficiary of a trust, you do not own the assets that are in the trust. Those are not your assets.

You might think of them like they're your assets. A lot of trust beneficiaries do, but legally and technically those assets belong to the trust and the trust is managed and overseen by the trustee. So as a beneficiary, a lot of times you have very little to no power over the assets in your trust.

And how you can access those assets in your trust is going to be dictated by the trust document. So you might have access to income that comes off the trust. You may be able to take larger distributions for health, education, maintenance, and support. Depending on the provisions of your trust, you may be able to take distributions for other reasons, but you are limited and constrained in terms of your interactions with the trust.

And this is true even for people who have trusts that are worth 30, 40, 50 million, a hundred million dollars. All of these same constraints still apply. And so when we think about these kids, these trust fund kids who are able to live these lavish lifestyles, that may be because they're the beneficiary of a $200 million trust and they are entitled to all of the income from that trust.

And so it's the income that's funding this lifestyle that you see. But even if you're the beneficiary of a $50 million trust, or if you're the joint beneficiary of a $100 million trust with three or four five other people, then you aren't going to be entitled to that same level of income. You might still be getting income from the trust itself, but the amount of income you're getting is not gonna be enough to support that lifestyle that people think of when they think of a trust fund kid.

Common challenges faced by trust fund beneficiaries

Let's talk about the most common issues that I see trust beneficiaries run into. The first and most common issue that I see is that as a trust beneficiary, depending on your relationship with your trustee, it can be very, very difficult to actually get an understanding of what's in your trust, why the investments in your trust are made the way they are, why your trust is invested the way it is, and what you are entitled to from the trust.

As a trust beneficiary, you actually have certain legal rights and certain legal protections. So you're entitled to see a copy of the trust document. You're entitled to, in most cases, an annual accounting from the trust.

Your trustee should be able to explain to you when you're gonna be able to pull money out of the trust for what purposes and how much you should pull out. And they also should be able to talk to you about how that might change over time.

But in reality, that rarely happens, especially if your trustee is a family member, a family friend, and not a corporate trustee. They might not be very good at their job. That's not to say that they're a bad person. That's not to say that they're fraudulent, but they are not a professional trustee. And trustee is a job. There are trust companies with professional trustees. So you have an amateur doing a professional job, and they might not know all of the rules.

And so they might say, no, I can't give you that or I can't do that when in fact it's part of your legal right. And so that's why a lot of trust beneficiaries struggle at the jump to understand what's in their trust, what they're entitled to, how that may change over time, because they don't have this open, honest and trusted communication with their trustee who's supposed to be the person that can communicate all of that information to you.

And so for a lot of trust beneficiaries, this means that they need to go out and find a financial advisor who can help them understand. They need to find their own estate planning attorney who can help them understand the provisions of their documents. And they need to build up a lot of support on their end to be able to establish this new relationship with their trustee.

The different types of trust fund distributions

And this new relationship is one where they come in as an informed beneficiary and they say, hey, no, I know these are my rights. I know this is what I'm entitled to for the trust document. I wanna talk about why this isn't happening or I wanna talk about some changes that I'd like to make to the trust. And if you're trying to get this information, one of the first things that you wanna know is what you are actually entitled to from the trust. So you might be what's called an income beneficiary.

I've talked a little bit about this already where you're entitled to all of the income or portion of the income that comes off

You might also have the right to make larger distributions from principal. Generally, these distributions are made under what's called the HEMS standard. HEMS stands for Health Education Maintenance and Support. It's a super common legal standard used in trust documents, and it basically gives the trustee pretty broad discretion to invade trust principal, to pull money out of trust principal, to give you money to keep yourself sort of at the level of lifestyle that you have been accustomed to.

But the issue with trustee discretion is if you don't trust your trustee, if you don't get along with your trustee, then you might not like your trustee's discretion being the one that decides if you get that distribution that you're looking for. And so then you're stuck between a rock and a hard place. You might, depending on the terms of your trust document, be able to replace your trustee.

So if you have a friend or a family member who's a trustee, you might be able to replace them with a corporate trustee who's going to be a little bit more standardized in terms of the types of distributions that they give to you. But that's also gonna come with some trade -offs because you have to pay a corporate trustee, which is gonna decrease the overall value of your trust. You might be able to work with your trustee and again, build that team of professional advisors up so that you can establish a better relationship with them.

And you can kind of find a way that works for both of you, even if it's not a perfect relationship, you can come to an agreement and find a good working relationship.

Fear and uncertainty for trust fund beneficiaries

Outside of having a negative relationship with their trustee and being stonewalled when they're asking for their rights as trust beneficiaries and understanding more about the terms of their trust, one of the other biggest issues that I see trust beneficiaries run into is fear and uncertainty about the future.

And a lot of that stems from the fact that trust beneficiaries don't have control for the most part over their trust assets. So you have this big pot of money that is for their benefit, but they don't understand it. They're not in control of it. They don't have any sort of reassurance that that money is always going to be there.

And in part, that fear comes a lot of times from the way that trustees talk. Trustees as a whole are very, very conservative. And this is an important thing to understand is that trustees have a fiduciary, a legal fiduciary obligation to the trust and to the terms of the trust document. And so a lot of times that means that the trustee, yes, they wanna make sure that they're meeting your requirements and sort of what they're legally obligated to do for you as a beneficiary, but they are also thinking two or three generations down the line.

So if they deny you a request for funds, it might be because they're worried that, okay, in two generations, that trust beneficiary is still gonna have wealth if we make this distribution or if we make this series of larger distributions. And a lot of times, this is actually really counter to what the person who set up the trust wanted. They set up the trust for your benefit and yes, it could kind of go on potentially in perpetuity or for a couple of generations, but they were thinking about their living heirs when they created the trust.

That's something you're just gonna have to fight with your trustee about. But because trustees are very conservative and they tend to have this sort of doom and gloom air, it can make you feel as a trust beneficiary like the money in your trust is going to run out. And this is not an exaggeration. I know and I work with beneficiaries of $30 million trust who are so afraid that the money in the trust is going to run out, that it's just not going to be there anymore.

And a big reason that they have this fear is because so much of what is happening behind the trust happens behind closed doors and they don't have access to it as a beneficiary. And so it creates this feeling of uncertainty and fear that you're living off this money that you don't understand, that you're not being given access to, but not only are you not being given access to it, you're not being educated about it.

You're not being informed about how your decisions change the trust, change what you may be doing into the future. And that is a really scary feeling when you feel like you're living sort of at the whims of this trustee. And so when people are in this situation, what I always encourage them to do first is to educate themselves.

How to empower yourself as a trust fund beneficiary

And I'm going to start to sound a little bit like a broken record here because again, one of the most important things that you can do if you're in this situation is to build a team around you. So you need to build a team of professionals around you. It could be an estate planning attorney, a CPA, a financial advisor who are able to help you understand your rights and understand what you need to start feeling better about your trust.

And it might be more communication with your trustee. It might be that you need to model the kind of communication that you want to see. You might need to provide them with more information about your life if you're looking for them to reciprocate.

Explain to them that you need to understand better the investments in your trust and how the income that you take out and the principal distributions that you take out change over time. Because one really, really, really frustrating thing that happens to trust beneficiaries is they make a request for principal withdrawal.

So they withdraw some amount of money and it's approved by their trustee and then maybe they make another request and it's approved. And then a couple of weeks later, they get an email saying, we're really concerned about all of these principal withdrawals that you've been taking and we're concerned about what it means for the long -term value of the trust. And that's like, well, why didn't you tell me that before I requested the first one or why didn't you tell me that before I requested the second one? And why are you now only telling me this after the fact when there's nothing that I can do about it?

And so it's about flipping that script and instead of having your trustee have this sort of after the fact slap on the wrist, which like honestly, if they were that concerned, they wouldn't have granted the request. So I would take it with a little bit of a grain of salt, but also you want proactive communication with your trustee. And so you want to build a team of people around you who are able to help you get to that level of proactive communication and push your trustee both on the legal front, but also just on the social emotional front.

To communicate with you better and help to provide you the information that you need in order to feel more reassured about your financial future as it relates to being a trust beneficiary.

There's a whole ton more detail about the hard parts of being a trust beneficiary that I could go into, but honestly, it's too much for a 15 minute episode. So if you are interested in this, please leave a comment, hit me up on Instagram. You can look at the link in the show notes. There's all the ways you can get in touch with me.

If you have any questions about this, I'd love to know what they are. And if you want to hear more about trust, let me know because I can always dive into the details, but I wanted to start with this really more surface level overview just to give people a sense, especially if you are new to being a trust fund beneficiary, if you think you might be one in the future and you're trying to educate yourself with that in mind.

That's all I've got for now. I'll see you on next week's episode of Heir Necessities.

Let’s take the next step together

Understanding how to manage life as a trust fund beneficiary is not easy. Inheritors can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can reach out to Katherine Fox, CFP® and CAP®, a financial planner for inheritors to learn how Sunnybranch can help you understand and plan for your future inheritance, however your trusts are structured.