by Jonathan A. Nelson and Christopher S. Woodruff
Trusts are rightly the centerpiece of many estate plans because they provide great tools for setting complex strategies, avoiding uncertainty for some matters where timing is important, and building in flexibility by deferring some decisions until they need to be made (even if after death).
But trusts aren’t right for everyone – sometimes they are more trouble than they are worth, sometimes the benefit doesn’t justify the expense of creating and setting them up, and sometimes they are the wrong tool for the job. What are some indicators that a trust may not be advisable? We have run into a few:
1. Straightforward assets: Whether the dollar amount is modest or the type of assets are as efficiently dealt with outside a trust, in some cases a trust simply does not add a lot of value.
2. No need for significant contingency planning: If a couple has one responsible 35-year-old child with no descendants and wants charities as the backup beneficiaries, the trust may not do a whole lot that can’t be done in other easier ways.
3. High likelihood of major estate planning changes in future: To young parents, the most important aspect of estate planning is often selecting the guardian for their minor children, and this is done through a will. It is perfectly reasonable to have basic estate planning documents (wills, powers of attorney, and medical directives) put in place first, and, if not needed now, reconsider a trust down the road when more particulars of the assets and family needs are known.
4. Cost: Trusts are labor intensive to create and maintain, and cost significantly more up front than wills. While trusts usually save money in the long run, some clients prefer for that money to be spent later in life or after they pass.
5. Records won’t be kept or the trust won’t be maintained: Trusts generally require more lifetime work than other plans. If a client’s personal strengths or lifestyle indicate leaving the paperwork to someone else would be more likely to meet the client’s goals, a trust may not be the best solution.
6. Public oversight is preferable: One of the usual upsides of a trust is its privacy and that any disputes are just between the parties to the trust, unless one of them asks a court to resolve something. In some instances (such as where there are dominant personalities with a potential for abuse, beneficiaries without the means or ability to defend their interests in the trust, or conflicts already anticipated to boil over into litigation), that privacy may end up being counterproductive. There are some creative solutions possible within a trust, but sometimes the court’s active oversight of probate meets the client’s goals better than avoiding probate.
7. Significant creditor issues: An executor has powers to deal efficiently with creditors which a trustee does not. Whether it is bad business debt, an unresolved dispute with the IRS, or difficulty paying student loans, sometimes the fact that the estate will require significant probate involvement to deal with creditors anyway means a trust will not add efficiency – or will add efficiency that benefits creditors rather than your family.
These are complex issues, and an attorney experienced in administering trusts and estates is invaluable in advising where you are – and aren’t – benefiting from sophisticated estate plans.
Next time in Trusts 101: A Brief Introduction to Different Types of Trusts
Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.
Christopher S. Woodruff is a member of the Virginia State Bar and has been licensed to practice law since 2016. Mr. Woodruff’s practice focuses on estate planning and the administration of trusts and probate estates. A passionate advocate for children and families, Chris brings extensive experience walking with people who are experiencing grief, trauma, and complex family situations. He provides patient, insightful, and tailored solutions to his clients.
The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.