Author Topic: Trust Fund Kid  (Read 2876 times)

Credaholic

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Trust Fund Kid
« on: May 08, 2014, 12:41:14 PM »
I have a friend whose crazy alcoholic father passed away last year. He was a very angry and not totally lucid man towards the end of his life, and changed his will to be as difficult as possible, leaving half (involuntarily) to the wife he was divorcing, and splitting the other half between one of his (four) children and one of his (five) grandchildren. My friend is the father of the one and a half year old grandchild who is now receiving a sizable trust fund.

The trust will pay out in four lump sums starting when the grandchild turns 18. My friend's wife is named as a trustee (he is not, basically his dad's final fuck you from beyond the grave). Their biggest concern is that they will likely have more children. I'm pretty sure I already know the answer, but is there any way that they can turn a trust named for one person into a trust named for all their children?

My other question is how much can they use the trust as he grows up? Can they use it to pay for private school tuition, for instance? Can they use it to clothe him, feed him, put a roof over his head, etc? If so, my suggestion to them would be to use it as much as possible for their eldest's benefit while socking away the money they would have otherwise spent on him for their next (as of now hypothetical, but likely) children.

Any advice much appreciated!

Cpa Cat

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Re: Trust Fund Kid
« Reply #1 on: May 08, 2014, 12:50:01 PM »
I'm pretty sure I already know the answer, but is there any way that they can turn a trust named for one person into a trust named for all their children?

My other question is how much can they use the trust as he grows up? Can they use it to pay for private school tuition, for instance? Can they use it to clothe him, feed him, put a roof over his head, etc?

Answer 1: No.

Answer 2: It depends entirely on what the trust documents say. A typical trust does allow those things. BUT - typical trusts are set up by typical people, not angry alcoholics. So there is really no way of knowing without reading the trust documents. If these things are allowed, then the trust will specifically say so. If the trust documents are silent on the issue and say only that there will be 4 lump sums, then there will be 4 lump sums and nothing else.

If so, my suggestion to them would be to use it as much as possible for their eldest's benefit while socking away the money they would have otherwise spent on him for their next (as of now hypothetical, but likely) children.

Answer 3: They can still do this. The money people generally sock away for kids is for college. Since the payments start at 18, this kid doesn't need a college fund. Nor a wedding fund. Nor a down payment on a house fund. Depending on the size of the trust, they may never be able to totally equalize this, but they can make sure that they provide what they can to their other children, with the knowledge that they won't need to save anything for the eldest.
« Last Edit: May 08, 2014, 12:55:12 PM by Cpa Cat »

BFGirl

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Re: Trust Fund Kid
« Reply #2 on: May 08, 2014, 12:51:21 PM »
A lot depends upon the language of the trust.  If it specifically named the grandchild as the beneficiary, then no, it would not be able to be used for other children.  If it named the children of "X", then yes it might be able to be used for other children.

Trusts are usually established with a standard for the Trustee to make distributions during the term of the trust.  The typical standard is that expenditures can be made for health, education, maintenance and support.  However, once again it depends upon the language of the trust. 

Please do not rely on anything in this post as legal advice.  Your friend and his wife should talk to an attorney to find out how the trust needs to be handled.  As a trustee someone is held to a higher standard and can be sued for breach of fiduciary duty if they do not handle the trust correctly.

Frankies Girl

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Re: Trust Fund Kid
« Reply #3 on: May 08, 2014, 01:01:25 PM »
Most likely, the trustee can use the money for supporting the child (food/clothing/schooling) and basically decide where to invest the money or what sort of account in which to hold the money.  And I would also say they definitely can't take any money from the fund to give to other children. The only way that could conceivably happen is if the kid decides to give money to his siblings when he receives some of it. And there will probably be some pretty strict accounting needed to show that the money taken from the trust to support the child is doing exactly that.

And the trustee (the mother of the child) should also be able to draw a fee for managing the trust on her child's behalf and can also use the money in the trust to pay for any lawyer or accountants needed to keep it straight.

Not a lawyer, but it seems to me that is the way it usually works, but they definitely need to do the research and check the specific setup of the trust per the will.

And hopefully they have a good lawyer that can help them through this. I don't see it as that bad since they will benefit indirectly by having this child's care and schooling (and probably even be FI when they become an adult) paid for by their grandfather, so they are much better off than if he'd disinherited everyone. And again, the child may choose to gift his parents or siblings money once it comes to him - so there is that too.