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In a perfect world, a trust fund ought to be the next best thing to winning the lottery. But for some, a healthy inheritance may do more harm than good.
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In 1976, the nation’s bicentennial, Villanova’s Joan and Standish Smith seemingly hit the All-American jackpot. After taxes, Joan inherited $1.5 million in stock-made money from her mother’s side. The pair immediately toured Europe, moving from country to country for a month and spending almost $8,000 before calling the bank to ask for more money.
That’s when they got the bad news: The inheritance was locked in a trust fund. “The bank ran out of our money,” Standish Smith says. “We had to take out a loan on our monthly dole-out just to get home.”
Still, news of the trust fund afforded the couple a windfall opportunity. Smith could retire. They could move out of their apartment and into a posh, secluded home in Villanova.
It’s what the Smiths have learned since then that’s disturbing. Old money held bondage in old trusts can frustrate and even debilitate beneficiaries. Once the settlor dies, it’s an uphill battle to amend the administration of that trust. This handcuffed financial existence irked Smith enough to form HEIRS, a nonprofit organization that’s grown to 2,300 beneficiaries nationwide, all dedicated to trust and estate reform. Solutions for reform—or even the need for it—differ. But one thing’s for sure: Generally, those with trusts misunderstand their rights, and are equally misunderstood.
“It’s misconstrued that anyone with a trust is a multi-zillionaire, but that’s not the case,” says Robert Whitman, a senior law professor at the University of Connecticut.
Whitman has been on a 50-year quest to balance trust and estate law with fiduciary accounting responsibility. A reporter for the National Fiduciary Accounting Project and co-author of the Fiduciary Accounting and Trust Administration Guide, he wants to turn a “delicate, complex” system into a fair one.
In general, trusts do an “incredible amount of damage to beneficiaries,” Whitman says. “The worst thing you can say to a person is: ‘Don’t worry, you’ll
never have to work again.’”
Drug and alcohol abuse is common among beneficiaries, as are mental disorders. “There’s something incredibly healthy about getting up in the morning and earning a living,” Whitman says. “So if you’re responsible, why would you bother relying on a trust? Go out and work! You’re out of your mind not to go work.”
On the affluent Main Line, reliance on trusts and the tug-of-war over the pent-up money, Whitman says, has resulted in a surprising number of “ineffective people who really have to fight to make a normal family life when there’s seemingly a lot of money.” When they’re younger, “trust fund babies” are “punished at school, laughed at and made fun of.”
Families with trusts often feel they need to live in “big houses or live a certain lifestyle,” he adds. But as the economy grows iffier, “you can’t support a life on one trust unless you’re talking about a trust of $100 million—and most are not like that.”
The Smiths’ $1.5 million has since grown into a multimillion-dollar account. So, is Smith—who, like his wife, is 76—a spoiled brat? Maybe. Does he have a point? Absolutely. Is he screaming for reform? You bet.
Smith fully realizes the general public’s likely response: Who are you to complain? You’re not doing anything to earn that money! “Even my neighbors have asked, ‘What do you do?’” Smith says. “Well, I don’t do anything. I run HEIRS.”
