I wish that financial education was taught in public schools. What is a trust, what are some benefits, and who is it a good option for?
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“I want my kid to have all the money I earned in my life, but I don’t want him to have it at age 14 or he’ll just spend it foolishly”
A trust is a legal entity that is set up to pay the recipient a stipulated amount (or percentage) of the money being held upon attaining certain milestones.
The executor of the trust has a job to invest the money inside a trust safely so that it doesn’t disappear due to market fluctuations and also must pay out the appropriate amount of money at the appropriate time.
A trust can be beneficial for some circumstances (children, persons with diminished capacity), but may not be necessary in cases when the recipient is already in a good financial position.
I used to manage estates and trust accounts. I remember having one for twins. There was a provision that allowed them to encroach upon the capital (i.e. receive early payout) if it would provide a meaningful quality of life. This was such a fluffy and bullshit sentence and it meant that these guys would call once a week wanting money to pay rent, buy a car, buy a camera, take a vacation, etc… it all qualified as meaningful quality of life. They ran out of money very quickly and I’m sure their parents were rolling in their graves.
Also had another interesting case where the trust was set up for the son. The son went crazy and killed his mom (father was already deceased). In theory, murdering someone to benefit from their trust account is a nono, but in this case, he was proven to be insane, so he was entitled to the money. Unfortunately due to his insanity, he had to stay permanently in the penitentiary. The net result was that we were sitting on millions of dollars, and the poor guys commissary to buy chips and snacks was always full at $100.
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