What are the Disadvantages of a Trust?
July 12, 2022
Sometimes, legal practitioners, insurance providers, or financial advisors may immediately suggest to their clients that a trust is the best approach for estate planning. I believe that a client should fully understand that, as with anything, there are disadvantages that should be explained. So, what are the disadvantages of a trust?
The first disadvantage of a trust is the cost.
To establish a revocable living trust, which is the most common form of a trust, it is highly recommended to engage an attorney that specializes in estate planning. I would suggest using an attorney that exclusively practices estate planning, as frequently as there are many nuances to the law and changes that may occur that the attorney may not be aware of. Attorneys may charge by the hour or offer a flat fee service. My approach is to offer a flat fee, as I believe this allows for a more free-flowing exchange between the client and their attorney. In addition to the cost of establishing a trust, there will be additional costs to fund the trust. A trust is funded when assets are placed in the name of the trust, such as real estate. The main cost would be to change the real estate deed to reflect trust ownership. Although there is an initial cost in establishing a trust, keep in mind that a properly drafted trust will reduce the probability of a will contest, in which a beneficiary may challenge the will. Probate litigation can be quite expensive and typically much more expensive than the cost of establishing trust.
The second disadvantage of a trust is complexity.
A typical will that I create for clients is between 30 and 40 pages whereas a trust can easily be 80 to 100 pages. This is because I trust incorporates incapacity issues, how to administer the trust and other items that a will would not include. Indeed, a trust is more complex; however, in my opinion, this complexity allows for more flexibility in estate planning.
A final disadvantage of a trust is the administrative burden.
After someone who established a trust passes away, the successor trustee will administer the terms of the trust. This can be complicated and time-consuming; however, a trust should contain provisions that allow for a trustee to hire advisors that can assist the successor trustee with trust administration.
To sum up, there are disadvantages to a trust. However, a properly drafted and funded trust can give you peace of mind, anticipate and manage incapacity issues if they arise, and potentially reduce the probability of litigation.
The information on this blog is for general informational purposes only. Nothing in this or any other communication should be taken as legal advice for any individual case or situation. All information on this site is not intended to create and does not constitute an attorney-client relationship.