How common are trust funds?
February 28, 2014 2:22 PM Subscribe
I commonly hear bitching and moaning about trustafarians, but how many of those are out there, really? Is it just a way to make fun of hippies, or are there really vast numbers of people living off their inheritance? I googled, and couldn't find any statistics. Please, no anecdata about "everyone I knew in Portland."
I just googled trustafarian, and for what it's worth, the people I know who have actual honest to god trust funds do not fit the textbook definition (and would never be described as hippies). I don't know if that's relevant to the information you're actually looking for.
posted by phunniemee at 2:35 PM on February 28, 2014
posted by phunniemee at 2:35 PM on February 28, 2014
all people who have trust funds != people who are able to live off of familial wealth. a trust is an estate planning tool. it's not necessarily a hallmark of sufficient wealth that you can afford to not be working or making money in some way. among folks who can afford to not work remember that it might not even be an inheritance; might be a family business, or real estate holdings, or money paid out from a lottery or lawsuit. the great potential variation here is what makes it hard to come up with definitive statistics about "trust funds" in general, or people living passively off existing wealth.
posted by zdravo at 2:43 PM on February 28, 2014 [7 favorites]
posted by zdravo at 2:43 PM on February 28, 2014 [7 favorites]
You might be able to get a very rough idea if you looked at the number of financial service firms that offer trust work.
Not all trusts are large enough to live on, certainly, and some trusts and so forth are designed to minimize taxes.
I have heard trusts for individual kids described as being millions and millions, but don't recall if that was for high net worth, extremely high net worth, or just folks.
posted by Lesser Shrew at 2:44 PM on February 28, 2014 [1 favorite]
Not all trusts are large enough to live on, certainly, and some trusts and so forth are designed to minimize taxes.
I have heard trusts for individual kids described as being millions and millions, but don't recall if that was for high net worth, extremely high net worth, or just folks.
posted by Lesser Shrew at 2:44 PM on February 28, 2014 [1 favorite]
Yeah, I think that often "trust fund" is kind of a shorthand way of saying that someone's lifestyle is substantially subsidized by family money, rather than a reference to an actual financial instrument. So, for instance, I've known people who probably didn't have trust funds but who could afford to live in an expensive city because their parents had bought a condo and were (maybe) renting it to them at greatly reduced rates. You're trying to figure out how your friend can afford a reasonably nice apartment on a part-time Starbucks salary while having an unpaid internship, and the answer is that he or she isn't paying rent or is paying greatly-reduced rent.
How common that is probably depends on where you're talking about. (And obviously, there's a very wide spectrum of help from parents.) My hunch is that it's pretty common among young people in high-status, low-pay sectors in big cities and probably a lot less common among everyone else.
posted by ArbitraryAndCapricious at 2:49 PM on February 28, 2014 [11 favorites]
How common that is probably depends on where you're talking about. (And obviously, there's a very wide spectrum of help from parents.) My hunch is that it's pretty common among young people in high-status, low-pay sectors in big cities and probably a lot less common among everyone else.
posted by ArbitraryAndCapricious at 2:49 PM on February 28, 2014 [11 favorites]
What an interesting question. It sounds like you're looking for the number of people who, in kinder terms, might be called "independently wealthy" -- that is, they don't need to sell their time to someone else for their income.
posted by samthemander at 2:50 PM on February 28, 2014 [2 favorites]
posted by samthemander at 2:50 PM on February 28, 2014 [2 favorites]
If you're just curious about how many people have funds set up for them to pay for college expenses, looking at 529 plan accumulated data might be helpful. This is a newish option for parents to put away tax-deferred money that can be applied to pay for kids' tuition. Some people who go to college and have parents paying for it may be people using this option.
This is, as you probably know, a totally different thing from a trust fund that I think most people are referring to, although there is some overlap. A trust fund could be a lot of different things. I went to one of those colleges where people were bitching about trustafarians all the time and I think it was more about people who not only weren't paying for college but seemed to have some sort of non-job regular income that meant they were relatively wealthy compared to other folks at our private liberal arts college.
I had my own tuition paid for out of a GST (generation skipping trust) which basically was set up by my grandparents and paid for tuition/room/board ONLY but didn't give me spending money. I had a job at school. I had no access to other money from the trust. I don't think people were talking about me but they may have been. My experience is that it's something that is more prevalent with either the newly-adult (getting an infusion of income before they get into the world of work) or the sort of middle aged folks (who have had the death of a relative).
The big thing about a trust as opposed to just having money, is that there are often rules set up external to the money itself. It's something that people set up (at some amount of expense) that allows money to avoid probate if someone dies and that can have restrictions on it or be externally administered and has some tax benefits along with it.
It's really tough to track this stuff down (I've been trying) because this sort of transfer of familial wealth is usually specifically designed/set-up to be a bit opaque (it doesn't trigger tax flags, the people don't show up in employment stats as anything special). Here's a slightly snotty article about trusts which does have this fact....
The Research Network on Transitions to Adulthood, which studies the phenomenon of "emerging adulthood," found that parents provide $38,000 cash, on average, to their kids in years between age 18 and 34, a big increase over previous decades.
You probably want to ask the folks at Resource Generation, an organization for young people with (mostly inherited) wealth who are aware of the class issues involved (and not squirrely about it) to see if they have some concrete numbers.
posted by jessamyn at 2:58 PM on February 28, 2014 [11 favorites]
This is, as you probably know, a totally different thing from a trust fund that I think most people are referring to, although there is some overlap. A trust fund could be a lot of different things. I went to one of those colleges where people were bitching about trustafarians all the time and I think it was more about people who not only weren't paying for college but seemed to have some sort of non-job regular income that meant they were relatively wealthy compared to other folks at our private liberal arts college.
I had my own tuition paid for out of a GST (generation skipping trust) which basically was set up by my grandparents and paid for tuition/room/board ONLY but didn't give me spending money. I had a job at school. I had no access to other money from the trust. I don't think people were talking about me but they may have been. My experience is that it's something that is more prevalent with either the newly-adult (getting an infusion of income before they get into the world of work) or the sort of middle aged folks (who have had the death of a relative).
The big thing about a trust as opposed to just having money, is that there are often rules set up external to the money itself. It's something that people set up (at some amount of expense) that allows money to avoid probate if someone dies and that can have restrictions on it or be externally administered and has some tax benefits along with it.
It's really tough to track this stuff down (I've been trying) because this sort of transfer of familial wealth is usually specifically designed/set-up to be a bit opaque (it doesn't trigger tax flags, the people don't show up in employment stats as anything special). Here's a slightly snotty article about trusts which does have this fact....
The Research Network on Transitions to Adulthood, which studies the phenomenon of "emerging adulthood," found that parents provide $38,000 cash, on average, to their kids in years between age 18 and 34, a big increase over previous decades.
You probably want to ask the folks at Resource Generation, an organization for young people with (mostly inherited) wealth who are aware of the class issues involved (and not squirrely about it) to see if they have some concrete numbers.
posted by jessamyn at 2:58 PM on February 28, 2014 [11 favorites]
Though the term contains the word "trust", the common usage usually refers to a relatively young person who lives a comfortable and self-indulgent lifestyle because they're being supported by wealthy parents/family and don't have to work in order to pay their bills, not because they're actually beneficiaries of a structured trust. I've also seen it applied far more to refer to hipsters rather than hippies.
posted by quince at 3:00 PM on February 28, 2014 [1 favorite]
posted by quince at 3:00 PM on February 28, 2014 [1 favorite]
You might be able to get a very rough idea if you looked at the number of financial service firms that offer trust work.
I think that number would likely be misleading, because trust funds are often a way of managing the large sums of money that people who are unable to work use to pay their way over the course of their lifetimes. For example, someone in a vegetative state might be living off of a trust fund. Those trusts are often funded with lawsuit winnings and don't necessarily have any connection to familial wealth.
The money in a trust fund is literally "held in trust," so the beneficiary may not necessary be the trustee (the person who decides how the money is spent) and is often not the sole trustee in any case (the other trustee might just be a lawyer at the firm who created the trust, though). A trust is also likely to contain stipulations on how the money must be used (for example, a stipulation that the money can only be spent on tuition or to buy property) that bars the trustees from paying out the money for any other purpose.
The so-called "trustifarians" I know are people who receive significant financial help from their families (for example, their parents pay or otherwise subsidize their rent). Some have literal trust funds as well, but because trust fund money is relatively hard to get to and use, that's usually not the money that they're using to pay their bills. In my experience, the money that is paying for their bills and spending is usually coming directly from their parents (for example, their parents are paying for things directly and/or giving them an allowance and/or they're using credit cards linked to their parents' accounts). There's probably not a way to track that kind of familial support, because nobody is declaring that kind of spending anywhere -- likely not even on tax records unless they're the most honest human beings on the planet.
posted by rue72 at 3:21 PM on February 28, 2014 [1 favorite]
I think that number would likely be misleading, because trust funds are often a way of managing the large sums of money that people who are unable to work use to pay their way over the course of their lifetimes. For example, someone in a vegetative state might be living off of a trust fund. Those trusts are often funded with lawsuit winnings and don't necessarily have any connection to familial wealth.
The money in a trust fund is literally "held in trust," so the beneficiary may not necessary be the trustee (the person who decides how the money is spent) and is often not the sole trustee in any case (the other trustee might just be a lawyer at the firm who created the trust, though). A trust is also likely to contain stipulations on how the money must be used (for example, a stipulation that the money can only be spent on tuition or to buy property) that bars the trustees from paying out the money for any other purpose.
The so-called "trustifarians" I know are people who receive significant financial help from their families (for example, their parents pay or otherwise subsidize their rent). Some have literal trust funds as well, but because trust fund money is relatively hard to get to and use, that's usually not the money that they're using to pay their bills. In my experience, the money that is paying for their bills and spending is usually coming directly from their parents (for example, their parents are paying for things directly and/or giving them an allowance and/or they're using credit cards linked to their parents' accounts). There's probably not a way to track that kind of familial support, because nobody is declaring that kind of spending anywhere -- likely not even on tax records unless they're the most honest human beings on the planet.
posted by rue72 at 3:21 PM on February 28, 2014 [1 favorite]
This doesn't answer your question, but most of the people I know who live off trust money have significant disabilities and would never be able to earn enough from paid employment to live. Perhaps that's an aspect you hadn't considered?
posted by goo at 3:53 PM on February 28, 2014 [2 favorites]
posted by goo at 3:53 PM on February 28, 2014 [2 favorites]
You might be able to get some idea by looking at the data collected by the IRS.
The Census Bureau also has detailed information by demographics of wealth and asset ownership.
posted by brookeb at 4:05 PM on February 28, 2014
The Census Bureau also has detailed information by demographics of wealth and asset ownership.
posted by brookeb at 4:05 PM on February 28, 2014
I went to a wealthy hippy college. There were many, many students with trust funds, using the term broadly to mean some version of "family money" that's distinct from dad having a high-paying job and writing checks for the tuition. As mentioned above, there's a lot of opacity about it, partly because of tax laws but also because we have such a strong "up by your own bootstraps" mythology so people with access to family money keep it a bit quiet (and of course so they aren't pestered by irritating requests for cash, business investments, or whatever else people request from the mildly rich).
There's a lot of scorn in terms like "trustifarian" but I'd have no problem being called that if someone wanted to give me a downpayment for a house or pay my way through medical school. One way to get at the question of how common they are is to think of it as a form of intergenerational wealth transfer, so it's only going to be the upper tier (by wealth, not income) that has access to enough money to be worthwhile. A few thousand in a tax-deferred college fund is not the same at all.
posted by Dip Flash at 4:40 PM on February 28, 2014 [2 favorites]
There's a lot of scorn in terms like "trustifarian" but I'd have no problem being called that if someone wanted to give me a downpayment for a house or pay my way through medical school. One way to get at the question of how common they are is to think of it as a form of intergenerational wealth transfer, so it's only going to be the upper tier (by wealth, not income) that has access to enough money to be worthwhile. A few thousand in a tax-deferred college fund is not the same at all.
posted by Dip Flash at 4:40 PM on February 28, 2014 [2 favorites]
Typically, a trust is created when someone dies. The purpose is to reduce inheritance taxes. That means your wastrel 20 something got the money from his/her grandparent. More likely, the money goes to a child of the deceased meaning someone in his/her 50s or 60s.
It is more likely that a very rich man would give his children a substantial allowance. I once met a woman who worked in the office that managed a rich family's money. It was actually a company that had that single client. The son was on a big allowance - hundreds of thousands if not a million a year - which he squandered and sometimes came back to beg for more. Classic case.
posted by SemiSalt at 6:46 PM on February 28, 2014
It is more likely that a very rich man would give his children a substantial allowance. I once met a woman who worked in the office that managed a rich family's money. It was actually a company that had that single client. The son was on a big allowance - hundreds of thousands if not a million a year - which he squandered and sometimes came back to beg for more. Classic case.
posted by SemiSalt at 6:46 PM on February 28, 2014
In the 3 years between my grandfather's death and my grandmothers's, we had a trust set up to take care of her with their money. The trust owned their house and some stock, and had a slush fund for things like groceries. When she passed away, the trust was dissolved and the four trustees (me, my mom and two siblings) inherited the stock and a share in the house. I lost my job in August, so I've been living (fairly modestly) on my inheritance and odd jobs since, but I do plan to return to work in the next few months. It's enough for a nice little nest egg, but not enough to live on for years or anything. So there's an example of a trust fund that isn't the stereotypical trustafarian thing. I feel like I met a few kids at college who never had to worry about money even a little bit, but that wasn't the norm.
posted by Nibbly Fang at 7:07 PM on February 28, 2014 [1 favorite]
posted by Nibbly Fang at 7:07 PM on February 28, 2014 [1 favorite]
I think you're going to have a hard time finding the intersection of family wealth, 20-something, and "is white and has dreads," which is what I think of when I hear "trustafarian."
Muffy and Skip at the yacht club don't count, but I'm not sure how one would exclude them from the data.
You might try something like "percent of students with no financial aid" intersected with "expensive schools one might think of as trustafarian hotbeds" as a start.
posted by zippy at 7:51 PM on February 28, 2014
Muffy and Skip at the yacht club don't count, but I'm not sure how one would exclude them from the data.
You might try something like "percent of students with no financial aid" intersected with "expensive schools one might think of as trustafarian hotbeds" as a start.
posted by zippy at 7:51 PM on February 28, 2014
I had a friend who's father was killed in an accident. His family won a large amount of money in a settlement stemming from its lawsuit. His mother set up a trust fund with a portion of the money so that he could have regular money to get through college, nothing more. I think it was a measured way for him to spend his money wisely.
posted by PJMoore at 7:56 PM on February 28, 2014 [1 favorite]
posted by PJMoore at 7:56 PM on February 28, 2014 [1 favorite]
As far as how much of the populace can live on their inherited wealth? I'd call up a trusts and estates lawyer and ask them for an estimate. Seriously, my father (now deceased) was an estates lawyer, and I'd bet he would have been glad to make up some number for you. Or a financial planner who works for Ameriprise or something-- they seem to be able to spout endless statistics.
posted by BibiRose at 8:30 PM on February 28, 2014
posted by BibiRose at 8:30 PM on February 28, 2014
My godmother left a portion of her estate to me when she killed herself, which was held in trust until I turned 18.
My grandmother died when I was 13; her estate stipulated that percentages were to come to me when I was 25,30 and 35, but I was able to control the income from it when I turned 18.
When I turned 18, my grandfather gave me gifts of stock under the taxable limit each year until he died; his estate stipulated that I would get percentages when I was 28, 33 and 38.
I had a huge struggle with my father over controlling my own finances in my late 20's because I was paying taxes on the money I wasn't seeing.
posted by brujita at 8:36 PM on February 28, 2014
My grandmother died when I was 13; her estate stipulated that percentages were to come to me when I was 25,30 and 35, but I was able to control the income from it when I turned 18.
When I turned 18, my grandfather gave me gifts of stock under the taxable limit each year until he died; his estate stipulated that I would get percentages when I was 28, 33 and 38.
I had a huge struggle with my father over controlling my own finances in my late 20's because I was paying taxes on the money I wasn't seeing.
posted by brujita at 8:36 PM on February 28, 2014
It doesn't directly answer your question, but this Freakanomics Podcast may (or may not) interest you - it deals with the effects of a windfall (a land lottery, in the case of the main study cited) on future generations. In summary, receiving a windfall had surprisingly little effect on the prosperity of that family a few generations later. So based on this one thing, I'd predict that the % of people with significant income from trust funds is relatively low.
My own anecdata - most of the relatively wealthy people I know (where I know their circumstances) had parents who were a bit wealthier than middle class, but not by much, and by and large they've grown their wealth by working full-time, usually by owning a business or working in a professional like medical or legal. I know a few people who appear to have significant inherited wealth, and often they're doing some part-time job, or something creative but not spectacularly renumerative. But not always. The BIGGEST names locally who have inherited wealth are working in the "family business" as hard or harder than anyone else I know.
Not saying that the distribution of wealth is completely fair, and I do believe there are major obstacles to the poor who are trying to become middle class or better, but on the other hand based on my observations it's very easy for rich people to become poorer.
posted by randomkeystrike at 8:22 AM on March 1, 2014
My own anecdata - most of the relatively wealthy people I know (where I know their circumstances) had parents who were a bit wealthier than middle class, but not by much, and by and large they've grown their wealth by working full-time, usually by owning a business or working in a professional like medical or legal. I know a few people who appear to have significant inherited wealth, and often they're doing some part-time job, or something creative but not spectacularly renumerative. But not always. The BIGGEST names locally who have inherited wealth are working in the "family business" as hard or harder than anyone else I know.
Not saying that the distribution of wealth is completely fair, and I do believe there are major obstacles to the poor who are trying to become middle class or better, but on the other hand based on my observations it's very easy for rich people to become poorer.
posted by randomkeystrike at 8:22 AM on March 1, 2014
There's this article from a few years back that says 40% of the real estate applications in Williamsburg involve a down payment from parents. I always thought the bitching about trust fund kids was a bit dramatic, and that there couldn't be that many trust fund kids or kids living on their parents' dime. But damn, 40% is a lot.
posted by lunalaguna at 12:01 PM on March 1, 2014
posted by lunalaguna at 12:01 PM on March 1, 2014
I'm coming late to this thread, but felt the need to chime in.
Like others have said upthread, it's not really about trust funds per se, but aggregate familial wealth, and how people use it to gain advantage in the competition for jobs, power and status.
While I don't think that in America overall the fraction of people with inherited wealth is all that large, in NYC it's surprisingly high. For example, my partner works at a Very Famous Center of Journalism, and she tells me stories about all the wealthy (and most very hard working) interns, who somehow manage working a very demanding job for free in the most expensive city in America. One was so wealthy her department threw their Holiday party at her Chelsea apartment. Many people on the internets have already commented how this setup keeps middle and lower-class people out of positions of power.
Another piece of anecdata, two different friends of mine are on coop boards in Brooklyn, and they've both commented on how the typical buyer in their coops these days is a 20- or 30-something person with an entry level job who is paying for the half-million dollar apartment completely with familial cash. People who are trying to buy with loans and downpayments are by definition more risky, and get lower priority in terms of who gets interviewed by the coop board.
And another friend of mine just applied (and was rejected) to buy in a income-regulated coop in Hell's Kitchen because, although she made just below the income max, had the downpayment and bank loan lined up (which should make her an ideal applicant), there were other applicants earning below the maximum allowable who were paying for the entire apartment in cash. This person had a relative that already lived in the building, and when the relative looked into it he found that each of the purchases in the last 5 years had been all-cash transactions: people with middle-class or entry-level jobs and inherited wealth which enabled them a leg up in the competition for good housing in the city.
I find this latter thing really upsetting, as it seems that even set-asides for middle-class and poor people in NYC are being gamed by rich people.
Your question made me look for real data on this phenomenon, but I couldn't find it. I think nobody's taken the time to collect it as of yet. It is a problem in need of a good Sociology or Econ graduate thesis.
posted by overhauser at 12:47 PM on March 1, 2014 [4 favorites]
Like others have said upthread, it's not really about trust funds per se, but aggregate familial wealth, and how people use it to gain advantage in the competition for jobs, power and status.
While I don't think that in America overall the fraction of people with inherited wealth is all that large, in NYC it's surprisingly high. For example, my partner works at a Very Famous Center of Journalism, and she tells me stories about all the wealthy (and most very hard working) interns, who somehow manage working a very demanding job for free in the most expensive city in America. One was so wealthy her department threw their Holiday party at her Chelsea apartment. Many people on the internets have already commented how this setup keeps middle and lower-class people out of positions of power.
Another piece of anecdata, two different friends of mine are on coop boards in Brooklyn, and they've both commented on how the typical buyer in their coops these days is a 20- or 30-something person with an entry level job who is paying for the half-million dollar apartment completely with familial cash. People who are trying to buy with loans and downpayments are by definition more risky, and get lower priority in terms of who gets interviewed by the coop board.
And another friend of mine just applied (and was rejected) to buy in a income-regulated coop in Hell's Kitchen because, although she made just below the income max, had the downpayment and bank loan lined up (which should make her an ideal applicant), there were other applicants earning below the maximum allowable who were paying for the entire apartment in cash. This person had a relative that already lived in the building, and when the relative looked into it he found that each of the purchases in the last 5 years had been all-cash transactions: people with middle-class or entry-level jobs and inherited wealth which enabled them a leg up in the competition for good housing in the city.
I find this latter thing really upsetting, as it seems that even set-asides for middle-class and poor people in NYC are being gamed by rich people.
Your question made me look for real data on this phenomenon, but I couldn't find it. I think nobody's taken the time to collect it as of yet. It is a problem in need of a good Sociology or Econ graduate thesis.
posted by overhauser at 12:47 PM on March 1, 2014 [4 favorites]
It's not that there's so very many of them that's necessarily annoying people, it's that they're the bloggers and baristas and full time crafters with cute apartments in an awesome neighborhood... It's sort of in your face a lot since their lifestyle is cute and media friendly fluff. The numbers just don't add up, but there's also never any explanation. It makes me feel like I'm doing something wrong with my own budget, when really I'm not. For me, a simple 'My family owns the unit I live in, and I'm so thankful for that since it allows me to otherwise support myself off Etsy' would go a long way.
It's also annoying because I think a lot of people are struggling right now just for basics, and a lot of people could be bloggers/interns/whatever if they had even a little help (no rent, no student loans, something etc) too. They don't have to be hippies nor living entirely off family money to annoy people.
posted by jrobin276 at 2:45 PM on March 1, 2014 [2 favorites]
It's also annoying because I think a lot of people are struggling right now just for basics, and a lot of people could be bloggers/interns/whatever if they had even a little help (no rent, no student loans, something etc) too. They don't have to be hippies nor living entirely off family money to annoy people.
posted by jrobin276 at 2:45 PM on March 1, 2014 [2 favorites]
Best answer: In the US, about 200,000 to 400,000 people recieve enough income to live off of. Source:
The link provided by brookeB leads to an IRS document, Estate and Trust Income
Tax Statistics http://www.irs.gov/pub/irs-soi/09estrustsnap.pdf. The second graph shows about 700,000 people receive between $10K and $100K, and about 100,000 people receive over $100K. It'd be much more interesing if the IRS broke the $10K to $100K bucket into 2 or more buckets.
posted by at at 4:23 PM on March 1, 2014 [3 favorites]
The link provided by brookeB leads to an IRS document, Estate and Trust Income
Tax Statistics http://www.irs.gov/pub/irs-soi/09estrustsnap.pdf. The second graph shows about 700,000 people receive between $10K and $100K, and about 100,000 people receive over $100K. It'd be much more interesing if the IRS broke the $10K to $100K bucket into 2 or more buckets.
posted by at at 4:23 PM on March 1, 2014 [3 favorites]
New article about trends in inherited wealth in the US today.
posted by BibiRose at 7:19 AM on March 11, 2014
posted by BibiRose at 7:19 AM on March 11, 2014
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