Estate planning is essential, and there are several estate planning options available. Ultimately, understanding what solution is right for you is critical to effective estate planning. While setting up a trust is an excellent, viable option, trusts still have drawbacks to consider. Here is everything you need to know if you are wondering, ‘What are the disadvantages of a trust?’
They Can Be Expensive
Cost is one of the most common answers when asking, ‘What are the disadvantages of a trust?’ Still, there are several things to consider.
Firstly, if a decedent passes away and only leaves behind a will, their estate will pass through probate court. During this process, the court evaluates the estate, ensures all debts are paid, and ensures remaining assets are distributed appropriately.
The costs of probate court can mount quickly when considering court fees, attorneys’ fees, executor fees, bond fees, appraisal fees, and more. Moreover, while trusts can help circumvent this process and its associated costs, they also come with expenses.
Typically, you incur fees when planning, structuring, and administering a trust though depending on the trust type, estate, and beneficiaries, there can be additional costs, such as:
- Legal counsel
- Maintenance fees
- Property registration
- Filing fees
- Title transfer fees
- Trustee compensation
- Potential legal and court fees in the event of disputes
- And more
Trust costs may still be considerably less than enduring probate court, but you must understand these costs to know if your estate’s value is worth the expense.
They Are Complicated
One significant drawback when answering the question, ‘What are the disadvantages of a trust?’ is their complexity.
Setting up and administering a trust is a complicated legal process that can be significantly cumbersome and time-consuming, so it requires extensive training and expertise to navigate. Firstly, there are two kinds of trusts: irrevocable and revocable.
Each kind has unique benefits, drawbacks, and legal requirements. Understanding what trust you need and how to set one up so the right legal mechanisms are in place requires the help of a premier attorney to avoid invalidating your trust instrument.
More importantly, however, trusts are also complicated because they require work to keep up with your changing situation. This maintenance requires continuous adjustments and sometimes amendments, and you must manually add specific assets to a trust.
Lastly, trusts include jargon and language that’s difficult to understand without extensive legal training, so administering them per the law after the decedent passes is a complicated process.
Worse yet, trusts are complicated and require legal expertise to write, and failing to write a legally binding document can result in expensive court involvement.
They Require Considerable Record Keeping and Paperwork
If you are determining the core drawbacks of a trust, the record-keeping and paperwork they require are significant disadvantages.
When setting up and administering a trust, it is imperative to maintain extensive records of property transferred into and out of a trust. This property can include personal property, real estate holdings, and financial assets.
You must transfer assets into a trust, so the trust owns the assets. Transferring assets requires time-consuming and detailed record-keeping and paperwork to show that a trust owns the property.
For example, if a trust gives directives about a house, but there is no deed transferring it from a person’s name into the trust, these directives are void. Moreover, you also must document any income you receive from property held within a trust.
Like most legal processes, working with a trust requires preparing, signing, and filing extensive documentation to ensure it is legally viable.
Contact Gokal Law Group to Learn if a Trust is Right for You
After examining what the disadvantages of a trust are, it is clear there are no cookie-cutter solutions for estate planning. There are several options at your disposal, and understanding what is ideal for you and your situation requires the help of a premier attorney. Estate planning is a complicated process with far-reaching consequences and a razor-thin margin for error. Legal counsel is imperative when embarking down this road.
Fortunately, at Gokal Law Group, we offer unrivaled expertise and commitment to clients. Contact us to schedule a consultation to learn if setting up a trust is advisable for you and your estate planning needs. We will find the perfect estate planning solution for you.