The potential downsides to a trust

The potential downsides to a trust

On Behalf of | Oct 12, 2023 | Trusts

While a last will and testament might be the most common way people transfer assets to family members and other beneficiaries after their death, another option exists. Estate planning in New York may involve setting up a trust, which can allow certain assets to transfer outside of probate. While there are benefits to creating a trust, certain drawbacks may arise.

Concerns about a trust

With a trust, a trustee manages the assets inside the trust on behalf of the beneficiaries. The estate planner who devises the trust would gain managerial control over the assets. Such would not be the case when drawing up a will. A trust may be worth considering for those who worry about how beneficiaries will manage assets.

There might be adverse elements to a trust. For one, a trust can be far more expensive to set up than a will. However, an estate planner might accept the additional costs because of their circumstances. Tax issues can raise the expenses associated with a trust even further. The tax rates may exceed those associated with an individual, adding even more costs.

Further potential burdens

Other issues to consider when crafting trusts are matters related to creditors. A trust might not provide sufficient protection against creditor obligations, potentially reducing the assets in the trust. Trusts also involve maintaining accurate records, which adds to the complexities.

Estate planners must decide whether to create a revocable or irrevocable trust. The grantor may revoke a revocable trust at will, but things are different with an irrevocable trust. With an irrevocable trust, cancellation is impossible without the beneficiaries’ permission. If the grantor and the beneficiaries disagree, the grantor cannot eliminate the trust. Estate planners may need to weigh these and other concerns when considering creating a trust.

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