At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
Some parents create a trust fund for their children, which is typically an account that boasts a hefty sum of money, though stocks, bonds, and property may also be included. A child whose parents have created this type of fund is usually called a trust fund baby, and while the term may often be used derogatively, there are some advantages of this arrangement. For example, a child who does not have to work during the teenage and young adult years often has a lot of time to focus on school or pursuing their dreams. Of course, sometimes just having access to money can help them get into a prestigious college, further helping them reach their goals. Another benefit of a trust fund is the ability for parents to set limits so that the child does not have access to all the money at one time, allowing them to save it until they reach adulthood.
Most teenagers are expected to work after school or on the weekends if they want to have spending money, but a trust fund baby typically is not. In fact, depending on the amount of money in the fund, some children will not even have to work during adulthood. This allows them to focus solely on school or extracurricular activities, often resulting in them becoming rather adept at a sport or skill, while also doing well in academics. Once a trust fund baby graduates from high school, access to money can lead to the freedom to pursue certain interests, even if no income results. For example, some trust fund babies may use their money to start a business without having to worry about making a profit for the first several years.
Of course, the typical trust fund baby does not even have to do well in high school in order to attend a good college. This means that even those who do not put their extra time to good use during high school, may be able to attend an Ivy League university, which can further their chances for success in the future. In fact, many trust fund babies are rather well-known around the world, and since some schools seek famous students, this can be quite an advantage. Of course, the typical trust fund baby can pay for tuition on his or her own, which is another reason that many schools are attracted to such students.
What many people are not aware of is that parents usually have the ability to set limits on access to the money in the trust fund. The majority of parents allow only limited access to the money, or none at all, until their child turns 18, or even 25, as they do not want the trust fund baby to spend it all before growing up. While not every parent takes advantage of this tool, it does offer them a great deal of flexibility in setting safeguards ensuring that children keep most of the money until adulthood, when they are more likely to make sensible choices with it.