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• A trust fund is simply a fund that holds assets, like cash or investments, typically set up by a parent.
• Trust-fund babies, the recipients of that windfall, are often stereotyped as over-privileged, spoiled twenty-somethings with no responsibilities.
• While trust-fund babies may have the security of reliable income, some do not live lavishly or have the sense of superiority society assumes.

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Trust-fund babies — a group of over-privileged, spoiled, adult-children that people love to hate. At least, that's what society is led to believe.

The trope goes something like this: While the world hunches over their desks grinding away for a steady paycheck, people with trust funds are jetting off to Bali in the middle of the week on a private plane or dropping their parents' money on a quilted Chanel bag — basically acting like any of the Rich Kids of Instagram.

The cliché of someone with a trust fund as an entitled, lazy, and stuck-up adult-child is an old, yet persisting one.

Look no further than Urban Dictionary, website king of defining all things slang, for a glimpse at the blatant perpetuation of the trust-fund baby stereotype.

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"A person who has a lot of money set aside for them and has no responsibilities," describes one Urban Dictionary user. "Most don't even know what it feels like to lift a finger or even have a job. In some cases, they act like spoiled brats for the rest of their lives and depend on their parents too."

Another user writes: "A wealthy, privileged child with no real world skills. These people are pampered beyond limit. Usually, they are an only child. They don't necessarily have a trust fund by their name, but their folks may have enough money [to] create one. They are usually a prima donna type."

A trust-fund baby is a "mean girl lady, a pink prom queen," sings boy band Why Don't We in their 2017 single "Trust Fund Baby."

There's little doubt that trust-fund babies are pigeonholed — but the trust-fund baby demographic may not be as narrow as society deems to it be.

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"Most of us trust-funders don't relate to those stereotypes," one trust-fund baby told Refinery 29. "We are ubiquitous, yet rarely flamboyant enough to make ourselves known."

What is a trust fund?

To truly define a trust-fund baby, one must first understand what a trust fund is.

Judy Spalthoff, executive director and head of family and philanthropy advisory at UBS Wealth Management, told Business Insider, "A trust fund is a term used loosely in society for funds held in trust."

Essentially, it's when one party, the trustor (for example, a parent or other relative), gives a second party, the trustee (for example, a bank or attorney), assets or property to hold "in trust" for a third party, the beneficiary. That person doesn't have to be a child and it can even be an entity, such as a charity.

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It's up to the trustor to decide on the terms or rules for how the trust fund should be managed, which can vary from family to family. However, beneficiaries can often access their trust fund upon an event, such as the trustor's death, or once they become a certain age, such as when they turn 18 or 21 — which may explain the reputation of a trust-fund baby as a spoiled 20-something.

There are different types of trust funds, and the assets and property can range from cash and stocks to real estate and a private business — basically anything of value. Though it's hard to track down data on trust funds thanks to self-reporting biases and the shame around inheriting money, the most recent Survey of Consumer Finances report shows less than 2% of Americans had inherited money through a trust fund as of 2010.

According to Spalthoff, parents need to figure out their needs as a family and back those needs into the right trust. For most parents, she says, it's about "making the wealth helpful and an opportunity versus a burden" for the kids so they can still follow their own path.

The Warren Buffett way

Take, for example, Warren Buffett's philosophy that you should give children "enough to do anything, but not enough to do nothing." The billionaire investor pledged most of his fortune to philanthropy, while his son, Peter Buffett, received $1 billion for nonprofit work and $90,000 in stock for personal use at age 19.

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It may seem a large sum, but it's pennies compared to Buffett's $85 billion net worth. Instead of leaving his inheritance alone — which would have grown to more than $70 million today — Peter used it as a head start to build a career as a musician.

And while trust-fund babies are often thought of as heirs to massive fortunes, like Buffett's, trust funds aren't just for the uber wealthy anymore — more people than ever are faced with making crucial financial decisions for their heirs. Middle-class citizens can set up trust funds too.

So yes, a trust-fund baby is a person whose parents set up a trust fund for them so they don't have to worry about where their rent money is coming from. They often have the security of reliable income to live on, but they may not live an outwardly lavish life or have the sense of superiority you think they do — and many even have jobs.

The allergic-to-work trust-fund baby is a stereotype, and likely not the norm.

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Are you a trust-fund baby with a story to share? Email hhoffower@businessinsider.com.

Economics Correspondent, Millennial Wealth

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