One of the biggest surprises anyone can learn is that they have a trust fund coming. For many people, this is an opportunity to take their foot off the gas, relax a bit, or, on the other hand, potentially grow lazy and rely on the idea that this trust fund will set them up for life. 

In the case of one Redditor who posted on r/fatFIRE, we have someone who knows that a trust fund is coming, and he’s actively looking to do the best he can with the money. This is especially true when he has parents who are not financially savvy and want someone to manage the funds. 

What’s so great about this post is that it’s a really good post about being smart with an unexpected windfall. This Redditor doesn’t plan to change their lifestyle meaningfully, which speaks to their level of financial savvy. 

The Scenario 

With this particular scenario, we have a 30-year-old Redditor who is set to inherit a trust fund of approximately $3.5 million. Understanding that his parents are not very financially savvy, they hired a financial advisor to help manage the money, but the Redditor isn’t sure this person is the right fit. 

The good news is that the Redditor seems to be the opposite of his parents and has already established good money habits. He earns approximately $150,000 annually with an estimated $25,000 bonus. In addition, he has $100,000 saved in a Roth IRA and another $100,000 in a high-yield savings account. Plus, he has two vehicles that have already been paid off. 

There is also a serious girlfriend in the picture, with whom the Redditor hasn’t sat down to discuss the money. While discussing getting married, the conversation around a prenuptial agreement seems likely, at least according to the Redditor. 

The Recommendation 

Knowing that this Redditor is already showing a sense of financial savviness makes this conversation easier. First and foremost, we know they can take out annual withdrawals, but as of now, he doesn’t see himself doing so. 

However, the biggest question here is how to handle the money. Even with some financial smarts under his belt, we’re talking about an entirely different amount of money. This level of money is the type of cash influx that changes people and their habits, which speaks directly to the question of the money being managed correctly. 

The Reddit post’s comment section says that the first thing the Redditor needs to do is check the financial advisor’s credentials. They also need to ask what kind of fees are involved. Perhaps the most important question is about the advisor being considered a trustee in that they have control over the assets and don’t necessarily have to act on every action the Redditor wishes to take. The Redditor should ask the advisor to see past performance and an investment breakdown, which will better help to see if the financial advisor has managed the trust wisely. 

Separately, knowing that the Redditor is the sole beneficiary, there is a question of what actions must be taken while this money grows. A prenup is a must-have conversation with the long-term girlfriend, but this goes far beyond that. If handled properly, this number can easily triple before the Redditor’s retirement age. 

To best understand everything financial coming his way, the Redditor must also speak to an accountant. An established accountant can help you with any tax implications depending on how the trust is set up. If the Redditor needs to take distributions, this is a different issue than just investing in the S&P 500. 

The Takeaway

With a life-changing amount of money on the way, the Redditor has a lot of decisions to make. As he still wants to self-manage his IRA and 401(k), that’s okay, but this is much more money than he has ever considered managing on his own. Even with the understanding that he’s not planning to withdraw money and wants to focus on 15 years from now, it’s not always that simple. 

This Redditor needs a quick education on how the trust is set up, who the trustee is, and past performance. From there, he is in the right place to make educated decisions about the next steps and how to see meaningful growth so that the next 15 years will hopefully set him (and maybe her) up for the rest of their lives. 

 

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