The Advantages and Disadvantages of Trusts

A trust is a tool that can be used by any estate plan, and it may be especially useful for people with a large number of assets. Whether you want to avoid probate, make gifts to charity, or provide for family members with special needs, there is probably a trust solution available that can help you achieve your goals.

There are several different types of trusts, but revocable living trusts are the most common type of trust in use today. These trusts allow an individual (called the “grantor”) to create a legal document that names one or more individuals and/or a company to manage money and property for his or her benefit during life and at death. The trustee is required to follow the instructions in the trust document describing how much income and/or principal to give each beneficiary each year, and when the trust ends and any remaining funds are distributed.

Another way trusts can be used is to transfer assets to beneficiaries immediately upon death without going through the probate process, which can take months or even a year or more and can be quite expensive in terms of attorney and court fees. This can reduce delays and ensure that your final wishes are carried out as soon as possible, and it can also protect your beneficiaries from creditor claims and divorce proceedings.

Lastly, trusts can be used to pass on prized collections such as art, jewelry or coins, or to give a donation to your favorite nonprofit organization. If you’re planning to leave such items to loved ones or charities after your death, be sure to retain records such as bills of sale, certificates of authenticity and insurance appraisals for each piece. You might also want to consider appointing a trustee with power of appointment to add new items to the trust and to give the trustee discretion on how to manage the distributions.

Are There Any Disadvantages to Using a Trust?

One drawback to trusts is that they can be more complex and time-consuming than a will. Creating a trust requires careful thought and detailed record keeping, and it’s often best to work with an experienced attorney who can help you set up and implement a trust that fits your unique situation. A trust can also be more costly than a will, and it’s important to remember that any additional costs that you incur on the front end could save your beneficiaries a significant amount of money in the long run by helping to avoid probate.

Ultimately, the benefits of a trust outweigh the disadvantages, and if you’re concerned about incapacity or want to provide for your heirs in a certain way, a trust is definitely worth considering. However, it’s important to evaluate your options carefully, and beware of prepared forms or kits that are marketed in magazines or through door-to-door salespeople, as well as investment scams that advocate the unrealistic benefits of trusts. You can also be fooled by workshops that are conducted by people with an ulterior motive to sell you their services.