Personal Finance

I just found found out my grandfather created a trust fund for me worth $650k - should I just pretend it's not there?

Rich Duprey

Published: January 27, 2025 2:20 pm

What do you do if you suddenly find yourself rich? While it’s a problem most of us would welcome, the sudden appearance of wealth can be life-altering in many unexpected (and not necessarily good) ways. 

How you handle this new-found wealth is extremely important and it is crucial you plan carefully for the future. That is the situation a Redditor on the r/RichPeoplePF subreddit finds himself in with the discovery of a lucrative trust in his name.

The situation

The Redditor is just 22 years old and was already doing well for himself. About to graduate with a masters degree and a job lined up that will pay him a six-figure salary, he had already squirreled away $155,000, mostly in index funds, but also a little in a high-yield savings account.

Yet he just discovered his grandfather left him a trust fund worth $650,000 that he will have access to soon. What he wants to know is whether he should just ignore it and pretend it doesn’t exist or take a more active role in its management. The account managers currently charge a 1% fee for their services and since he is interested in investing in real estate, it could be a means for doing so without taking on debt. There are also tax considerations to be dealt with.

The solution

While I’m not a financial advisor or a tax planner, so these are only my opinions, but pretending the trust doesn’t exist isn’t a strategy — it’s an opportunity missed. This money can significantly enhance your financial stability and future growth if managed correctly.

The first thing to do is to get a quick education in trusts. That isn’t just a lump sum of money, but rather a legal entity designed to manage and distribute assets. Since the Redditor is already saving and investing, understanding how trusts work can complement his existing strategy. Look into what type of trust this is — revocable or irrevocable — as this will impact the control he can exert over the funds and the tax implications associated with it.

It’s quite possible this is what’s known as a generation-skipping trust (GST). That’s where a grandparent’s assets are passed down to the grandchildren (hence the name) so as to avoid estate taxes upon their death. For 2025, the current exclusion is $13.99 million, but will revert to $7 million next year unless extended.

The Reddtor should learn if the trust, especially a GST, imposes any conditions on how the money is managed.

Real estate or a real hassle?

While the existing 1% management fee isn’t unreasonable, it’s worth assessing if greater value can be found elsewhere or whether managing it yourself makes more sense. 

Investing in real estate could be a smart move, since the Redditor has a deep aversion for debt, and it could potentially generate rental income or capital gains down the line. But remember, real estate isn’t just about buying; it’s about managing properties, tenants, and maintenance costs. It’s a big commitment many novice real estate investors actually aren’t ready for. 

The taxman cometh

Taxes are a big deal here. Trusts can be taxed differently based on their type and how they distribute income. If the trust is generating income (like from investments or properties), you might want to consider the tax benefits of distributing or reinvesting that income. 

For instance, if you’re in a lower tax bracket, taking distributions might be less costly than having the trust pay taxes on the income at higher rates.

It’s why consulting with a financial planner and a tax advisor is crucial to ensuring you’re not paying more tax than necessary.

What do you want to do?

Lastly, your life goals are important, too. This money could rapidly accelerate plans for further education, start a business, or bolster your retirement savings. But remember, sudden wealth can lead to lifestyle inflation. Keep your spending in check and maintain your saving habits.

Key takeaway

Enjoying sudden wealth is not a passive experience. It is important to engage with the trust: Learn about it, discuss it with financial advisors, and make it work for your long-term goals. Whether you’re leaning towards real estate, further investments, or simply securing your financial future, this trust fund can be a pivotal part of your wealth-building journey. Just make sure you’re making informed decisions, not just spontaneous ones.