Trust funds—The Inheritance Project weighs in

One of the six key questions on page 1 of Coming into Money: Preparing Your Children for an Inheritance is: “Should I set up trusts for my children? Or should I give them the money outright?”

This is a particularly complex subject to which there is no quick answer. As a cofounder of The Inheritance Project and an inheritor myself—and as a “trust-fund baby”—it is difficult for me to be as objective in this matter as I would like. My father created an irrevocable trust for me when I was in my twenties, although I didn’t know what was happening because no one ever bothered to explain it to me. And, to be fair, I never asked any questions. I just signed the papers that came in the mail from the trust company and sent them back, and that was that.

It wasn’t until I was on the brink of being left by my husband that I started to question the role of my inherited money in my life. I came to the conclusion—somewhat foolishly, I see, in hindsight—that my money was the source of my relationship problems. I thought if I could somehow get rid of the money, my life would be better, and maybe my husband wouldn’t leave me. So I called my trust officer—something I had never before done—and told him that I wanted to stop receiving money from my trust. The was a silence on the other end of the phone line. His discomfort was palpable. Finally my trust officer told me that unfortunately, I could not stop receiving the money. I didn’t understand. He had to explain to me, in very basic terms, what an irrevocable trust was, and that I would continue to receive the money whether or not I wanted it.

It took me the next twenty-some-odd years to even begin to grapple with the situation I was in, and to begin to learn something about trusts, particularly irrevocable trusts, and what I could do. I came to see that my father had put me in a very comfortable situation financially, but otherwise, he had put me in a powerless position. I could not stop getting the money (I got over that foolish idea fairly soon, but there was a sort of hangover); I could not request distributions from principal; and I could not decide what to do with my assets after my death, except within the very narrow limits of bequests to my husband and children, and to my parents’ alma maters!

I came to hate my father. I won’t go into the long, somewhat technical history of how I was able to do it; I’ll just say that after three-plus years and thousands of dollars in legal costs, I was able to break my trust. I  felt free in a way I had never known, and I finally had full control of my assets. I could do whatever I chose with them.

This momentous event happened when I was fifty-nine.

My story is only one of many stories—each of them unique. I offer it as an example of how rigid trust funds (irrevocable trusts) do more harm than good. There are other ways to set up trusts that, I  believe, are helpful to young inheritors. Such revocable trusts stay in place until the heirs are mature enough to manage their own wealth, or to choose someone who will manage it for them.

Please come back …. the tale will unfold.