Drawbacks of Trusts
Drawbacks of Trusts
People often hear about all the advantages about setting up trusts, such as avoiding probate, having more privacy, and saving money. While there are certainly many good things about trusts, they also come with several drawbacks. It’s important to be aware of these drawbacks before you decide to set up a trust.
Here are some of the disadvantages of trusts.
Few Tax Advantages
It’s a common misconception that trusts provide much better tax advantages than wills. The truth of the matter is that it doesn’t provide many tax benefits at all. The settlor can revoke the trust at any point and maintain control of the assets inside it. Income earned from trust assets is reported on the settlor’s individual tax return.
Also, trusts don’t provide any benefits when it comes to tax planning. When the decedent of an estate dies, the court creates a new taxpayer out of the estate. This person will have a different tax rate structure, exemptions, and deductions.
Trusts are also much more complex than wills. For the most part, wills just state which assets go to which beneficiaries. Trusts, on the other hand, could give the trustee discretion as to when the funds should be removed from the trust and given to the beneficiary. The trustee may be required to create a trust checking account. The assets also have to be legally titled to the trust. Otherwise, they won’t be considered part of it when the testator dies.
Costs More Money Upfront
Establishing a trust can help avoid probate in the future, which can save your estate a lot of money. However, it’s important to understand that setting up a trust costs much more than setting up a basic will.
Your Heirs Will Have Longer to Contest
While it would be ideal if family members never started arguments over estate, it’s not reality. If family members believe that they are being treated unfairly, they may choose to contest the estate. With wills, beneficiaries have 30 to 90 days to contest a will in court. However, they can have one to five years to contest a trust. This can create more turmoil for other family members.
Consulting with an Estate Planning Lawyer
If you’re not sure if establishing a trust is the right choice, you should speak to an experienced estate planning lawyer soon. He or she can assess your unique situation and help you determine if a trust is beneficial or not.