The Advantages and Disadvantages of a Trust
What you should know!
Disadvantages of Revocable and Irrevocable Trusts
Having No Will or Trust is disadvantageous for the Trustor/Grantor and the Beneficiaries. Now, when reviewing the disadvantages, it is essential to match the pros and cons of a Trust with your exact family situation.
Probate Topics, Probate Litigation
Tips A BENEFICIARY SHOULD KNOW TODAY!
Tips A TRUSTOR SHOULD CONSIDER
What are the Disadvantages of a Living Trust
Disadvantages of a Trust?
What Can They Be?
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Are there disadvantages to a Living Trust? Before attempting to state the disadvantages versus the advantages of a living trust, we need to take into consideration the other options.
The options in simple terms are the following:
- Do nothing (Dying Intestate)
- Get a Will
- Get a Trust
Let’s start here because it is the bigger picture that determines the method in which you protect your assets and how you can pass your legacy to your family.
Let’s get to the core of the options immediately.
“Doing nothing” is by far worse than any disadvantages from getting a will or a Trust.
What are the disadvantages of doing nothing?
Let’s look at the pain from doing nothing. When you die without a will or a Trust, it is called dying intestate. If you have left assets such as real estate properties, bank accounts, jewelry, investments, you will effectively have the following happen:
- The probate judge will determine who will be your Executor. An executor is a person who will manage the estate and distribute the assets to the beneficiaries. The Executor, though picked by the courts, may never have been a person even on your radar.
- Cost to Probate: Probate Fees are exorbitant once you die. Yes, you did not have to pay some initial cost upfront, but the price for lawyers, court fees, for example, will easily outweigh the cost if you were to have done your due diligence.
- Die without any family: If you die without any family, your property will “escheat” into the government coffers. So, when you forfeit your assets to the state, its called escheat. Now, this is a highly unlikely scenario because the state will determine who is remotely related to you. The state will look into children, cousins, nephews, etc.
- You eliminate your choices to distribute your hard-earned assets: Once the probate court enters the picture, they will effectively choose who will administrate the estate, and your desires to distribute the estate assets are nullified.
Here is California probate code 6402 that discusses how the estate will pass to family members under the state “intestate succession” laws.
To summarize, you will not be able to divide your estate according to your wishes.
What about a Will? What are the disadvantages?
We are discussing whether a Trust has disadvantages, i.e., pros and cons of a Trust, but it would be remiss if we didn’t go over a Will and the difficulties as well as the advantages. Minimally, if you choose a Will or a Trust, you are in the right direction to protect your hard work and effort to accumulate wealth and pass it to your loved ones. But are the disadvantages of utilizing a will outweigh the use of a Trust?
What are the disadvantages of a Will?
By far, a Will is a better choice than doing nothing and having your assets controlled by someone whom you may never have chosen, including the high cost to probate an estate.
So what are some disadvantages of a Will?
One of the first disadvantages is that a Will is that you will still go through the probate process. After you are deceased, which, if the time to distribute assets to beneficiaries and cost is a factor, then you are looking at 18 months onward to settle the estate, not including its done in the public eye. Yes, it is typically less costly to set up a Will than a Trust, but in today’s competitive landscape, the cost of setting up a Trust has dramatically diminished.
What are more disadvantages of a Will versus a Living Trust?
Here is a list of the disadvantages of a Will:
- Still have to go through probate: Your loved ones will have to deal with the court, attorneys, and a litany of other Executor topics.
- Public: The public can see a will, so if you wanted to keep your estate private, it’s not an option with a will.
- Cost: The option of saving is twofold. Yes, it is less costly to open a will versus a trust, but in the long run, it can cost more. Take into consideration the standard California probate fees.
Pros and Cons of a Trust
Family Trusts Disadvantages
To keep dying intestate, a will, and a Trust on a level playing field, it would be disingenuous to state there are no disadvantages to a family trust, whether it is a revocable Living Trust or Irrevocable Trust.
With that said, here are the disadvantages of a Trust:
- More complex than a will: When you complete a Trust, you will need to compile all the documents associated with the assets you will want to assign to the Trust.
- Many more “What ifs”: When working with an estate planning attorney, you will need to answer to many, “what ifs.” Questions like:
- What if you die, and your wife is incapacitated. Who takes care of her?
- What if you die, and the successor trustee cannot complete the trust administration process?
- What if your beneficiaries have a conflict due to the inheritance?
The Hess-Verdon outlook: The more “what ifs” you answer, the better!
- Inconvenience: There may be some inconvenience because an asset like a real estate property has to be taken out of Trust before refinancing it, for example.
The point is that it may look like a “disadvantage” because you have to have all your ducks in a row early in the game, but the long-term outlook can be optimistic, answering the many, “what ifs.” So someone may not look at the “what ifs” as a drawback.
Key take away: You may have seen a living trust cost of $399.00, for example, but its not the price, but the depth in which the document goes. If there are missing topics in your Trust, i.e., blended family conversations, ex-wife, ex-husband topics, you may not have done your due diligence and opens the Trust to possible litigation in the future.
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