What is a trust-fund baby? Maybe not the spoiled millennial you think

Middle-class citizens can
set up trust funds too.
Martin
Hunter/Getty Images

• A trust fund is simply a fund
  that holds assets, like cash or investments, typically set up
  by a parent.
• Trust-fund babies, the
  recipients of that windfall, are often stereotyped as
  over-privileged, spoiled twenty-somethings with no
  responsibilities.
• While trust-fund babies may have
  the security of reliable income, some do not live lavishly or
  have the sense of superiority society assumes.

Trust-fund babies — a group of over-privileged, spoiled,
adult-children that people love to hate. At least, that’s what
society is led to believe.

The trope goes something like this: While the world hunches over
their desks grinding away for a steady paycheck, people with
trust funds are jetting off to Bali in the middle of the week on
a private plane or dropping their parents’ money on a quilted
Chanel bag — basically acting like any of the Rich Kids of Instagram.

The cliché of someone with a trust fund as an entitled, lazy, and
stuck-up adult-child is an old, yet persisting one.

Look no further than Urban Dictionary, website king
of defining all things slang, for a glimpse at the blatant
perpetuation of the trust-fund baby stereotype.

“A person who has a lot of money set aside for them and has no
responsibilities,” describes one Urban Dictionary user. “Most
don’t even know what it feels like to lift a finger or even have
a job. In some cases, they act like spoiled brats for the rest of
their lives and depend on their parents too.”

Another user writes: “A wealthy, privileged child with no real
world skills. These people are pampered beyond limit. Usually,
they are an only child. They don’t necessarily have a trust fund
by their name, but their folks may have enough money [to] create
one. They are usually a prima donna type.”

A trust-fund baby is a “mean girl lady, a pink prom queen,” sings
boy band Why Don’t We in their 2017
single “Trust Fund Baby.”

There’s little doubt that trust-fund babies are pigeonholed — but
the trust-fund baby demographic may not be as narrow as society
deems to it be.

“Most of us trust-funders don’t relate to those stereotypes,” one
trust-fund baby told Refinery 29. “We are
ubiquitous, yet rarely flamboyant enough to make ourselves
known.”

What is a trust fund?

To truly define a trust-fund baby, one must first understand what
a trust fund is.

Judy Spalthoff, executive director and head of family and
philanthropy advisory at UBS Wealth Management, told Business Insider, “A
trust fund is a term used loosely in society for funds held in
trust.”

Essentially, it’s when one party, the trustor (for example, a
parent or other relative), gives a second party, the trustee (for
example, a bank or attorney), assets or property to hold “in
trust” for a third party, the beneficiary. That person doesn’t
have to be a child and it can even be an entity, such as a
charity.

The allergic-to-work trust
fund baby is a stereotype, and likely not the
norm.
Caroline
McCredie/Getty

It’s up to the trustor to decide on the terms or rules for how
the trust fund should be managed, which can vary from family to
family. However, beneficiaries can often access their trust fund upon
an event, such as the trustor’s death, or once they become a
certain age, such as when they turn 18 or 21 — which may explain
the reputation of a trust-fund baby as a spoiled 20-something.

There are different types of trust funds, and the assets and
property can range from cash and stocks to real estate and a
private business — basically anything of value. Though it’s hard
to track down data on trust funds thanks to self-reporting biases
and the shame around inheriting money, the most recent Survey of Consumer Finances
report shows less than 2% of Americans had
inherited money through a trust fund as of 2010.

According to Spalthoff, parents need to figure out their needs as
a family and back those needs into the right trust. For most
parents, she says, it’s about “making the wealth helpful and an
opportunity versus a burden” for the kids so they can still
follow their own path.

The Warren Buffett way

Take, for example, Warren Buffett’s philosophy
that you should give children “enough to do anything, but not
enough to do nothing.” The billionaire investor pledged most of
his fortune to philanthropy, while his son, Peter Buffett,
received $1 billion for nonprofit work and $90,000 in stock for
personal use at age 19.

It may seem a large sum, but it’s pennies compared to Buffett’s
$85 billion net worth. Instead
of leaving his inheritance alone — which would have grown to
more than $70 million today —
Peter used it as a head start to build a career as a musician.

And while trust-fund babies are often thought of as heirs to
massive fortunes, like Buffett’s, trust funds aren’t just for the uber
wealthy anymore — more people than ever are faced with making
crucial financial decisions for their heirs. Middle-class
citizens can set up trust funds too.

So yes, a trust-fund baby is a person whose parents set up a
trust fund for them so they don’t have to worry about where their
rent money is coming from. They often have the security of
reliable income to live on, but they may not live an outwardly
lavish life or have the sense of superiority you think they do —
and many even have jobs.

The allergic-to-work trust-fund baby is a stereotype, and likely
not the norm.

Are you a trust-fund baby with a story to share? Email
[email protected].