Creating the Family Fortune Trust


What if you could make it so that every one of your descendants had money to attend college?  What if each member of your family received money when they were born that they could invest and use to pay for their retirement?  How about each of your descendents receiving a generous sum of money when they became an adult (or maybe when they became 25 and had developed some sense) to start them out in their new life.  Maybe each of your family members gets an initial emergency fund so that they would never need to go into credit card debt.  Maybe you pay for the weddings of all of your descendents.  Or their funerals.  Or their honeymoons.  Or a world trip when they turn 20.

Does this sound like something only a rich person could do?  Believe it or not, it can be done for less than most people spend on drinks in restaurants each year.

Here is a simple idea that could allow you to accomplish all of this for just a modest amount of money.  Unfortunately, unless you have a less-than-modest amount of money you won’t be able to do these things for your children, but you could starting with your grandchildren and all of your descendants after that.  Here is the plan:

1.  Around the time your children are born, or maybe when you’re starting your first job and don’t have a lot of expenses, make an investment of $2000-$5000 in a growth mutual fund. 

2.  As time goes on this sum will grow.  Assuming an average return of 10%, the amount in the mutual fund should double about every 7 years.  This means by the time your children are out of the house the value should be $8000 to $20,000.   At that point, begin to spread it out into one or two other mutual funds.  For example, in addition to your growth fund, you might purchase a growth and income fund and a value fund.  If you started with a small cap fund, you might buy into a mid cap fund and a large cap fund.

3.  By the time your children are having children (assuming they are in their early thirties), the value of the funds should have doubled one or two more times, making the value between $32,000 and $80,000.  At this point, spread the money further into five different mutual funds by adding an international fund and some sort of aggressive growth fund.  By this point your trust should have enough diversification to weather any market events that should occur.

4.  18-21 years pass and your grandchildren are entering or through college or early in their careers.  At this point the funds should have doubled three more times, making the account balances between $256,000 and $640,000.  At this point they would receive a distribution from the account.  For example, you could give each 5% of the trust, or between $12,300 and $21,300.  This is a nice gift, emough to start an emergency fund, but certainly not life changing (except perhaps allowing them to avoid credit card debt).

5.   Sometime after the distributions to your grandchildren, you’ll need to set up a formal trust with specifications of how the money is the be distributed (since you’ll be growing quite old).  At that point you’d need to create a line of trustees and specify exactly how the money is to be given out.

6.  When you great-grandchildren are ready to enter adulthood, another 35 years will have passed since the time your grandchildren got their distribution.  At that point, the trust will probably contain between $27 and $112 million dollars (depending on whether you started with $2000 or $5000).  At that point,  1% distribution could be made to each heir at the appropriate time, resulting in payments of $270,000 to $1 million each.  Wouldn’t that be a great way to start out in life?  As long as the payments were kept below a certain percentage of the trust (between 5 and 8% per year), the value should never drop.

In summary, using a little creative planning, the returns of stocks,  the power of compounding, and taking advantage of time, anyone can create a trust that would change your family for generations to come.  There isn’t much that can be done for your children.  The amounts received by your grandchildren would be appreciated but modest.  By the time your great-grandchildren were ready, however, your could dramatically change their futures.  As long as no one gets greedy along the way and the trust is not eaten up by lawyer fees, your legacy could last indefinitely.

Comments appreciated! What are your thoughts? Questions?

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