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What Are the Disadvantages of a Trust?

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Complicated and Difficult to Understand

One of the disadvantages of a Trust are that Trusts are very difficult to understand.  Historically, trusts used language that was specific to the legal field.  For those that were not trust and estate lawyers, it was almost impossible to understand.  To make things more complicated, trusts often use Latin terms to describe certain legal concepts.  Modern trusts are typically clearer, however, this may mean the trust ends up being over 80 pages long.

Why does it take 80 pages to describe your estate planning wishes when you can explain it in 2 minutes?  There are a few reasons.  The first reason is that a Trust has to deal with many different circumstances.  Most people think of Trusts as an explanation of what happens to your assets when you die.  However, the Trust must also consider the terms of the Trust while you are living with capacity and the terms of the Trust while you are living and incapacitated.  For each of these different scenarios, the Trust needs to address contingency terms.  For example, what happens if the Trustee you named is deceased or the beneficiary is deceased?

The second reason a Trust tends to be so long is that it is administered without the supervision of the court.  Therefore, the Trust must provide the specific parameters of how the Trust is supposed to be administered.  For example, when does a Trustee have to account to a beneficiary?  How much is a Trustee supposed to be paid?  These are not issues that are often thought about.  If the Trust does not adequately address these issues, they will be litigated in court.

The alternative to a Trust is to do a simple Will.  A Will can be as simple as writing in your own handwriting, “I give everything in my estate to my son at the time of my death.”  The problem with a simple Will is that you leave all of the other issues up to the court and the law to decide.  It also means you end up in a long and expensive probate process.

Another alternative is to do nothing, and let your estate be distributed by the court.  This is rarely, if ever, the best option.

Hard to Administer a Trust

Because Trusts are complicated to understand, they become more difficult to administer.  Reviewing 80 pages of single spaced text can be overwhelming.  Trusts typically need an attorney to help the Trustee (the person in charge of the Trust) to administer the Trust for the beneficiaries.

Even with Trusts being as long as they are, they still don’t often give the Trustee with all of the information they need to distribute the Trust assets.  You can think of this like getting your driver’s license.  Even if you understand all of the rules of the road, it does not mean you know how to drive a car.  The trust provides you with the rules for distribution, but it doesn’t address specific issues that come up during the actual administration.  A certified specialist in estate planning law can guide you through the trust administration process and help the trustee avoid common pitfalls.

Initial Setup Costs

A Trust is almost always more expensive to set up than a Will.  It is certainly more expensive to set up than doing nothing.  However, if you only have a simple Will, your estate will require a probate.  Probates are much more expensive than Trust administrations.  Typically, your estate will pay more to go through probate than it would to go through a trust administration.

These days, many people realize the benefits of a Trust over a Will or doing nothing.  However, the biggest mistake is believing any Trust will do and therefore go with the least expensive option.  A poorly written Trust can lead to costly court involvement which eliminates any savings you may have with using a low cost Trust option.

Interestingly, most people are aware that hiring an attorney to go to court is expensive and are not surprised when it may cost $5,000 or more.  However, people are often much more price sensitive to creating their trust.  Ultimately, it is important that you pick a qualified trusts and estates attorney to assist you with drafting your Trust in order for the Trust to be the correct choice.

Modern Wealth Law is a full service estate planning and probate law firm with its principal offices located in Irvine, California. Each Orange County estate planning attorney at Modern Wealth Law practices exclusively in the areas of estate planning, asset protection, probate administration and trust administration. Each estate planning lawyer brings a sophisticated level of understanding to these complex and technical areas of the law. We are dedicated to providing you and your family with the finest legal representation throughout Orange County and Los Angeles County.

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