Advantages & Disadvantages of Trusts
When choosing an estate plan, the most common schemes are either a traditional will or a will/trust combination. A common misconception about trusts is that a person needs a large estate or many assets to create one. As legal services provider Legal Zoom indicates, a trust may be appropriate for an estate of any size. However, a close look at the advantages and disadvantages of a trust is necessary in order to make an informed decision.
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Advantage: Trusts Generally Avoid Probate
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The most commonly cited reason for choosing a trust over a traditional will is that it avoids probate. This is generally true, as assets placed in the trust are not subject to probate. This can significantly reduce the time and costs typically associated with probate. However, an estate plan that utilizes a trust cannot completely escape probate in most cases. Often a person has not transferred every piece of property owned at the time of his death into the name of the trust. As a result, probate may still be required to handle these unassigned assets.
Advantage: Trusts Preserve Privacy
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When an estate goes through the probate process, it becomes a matter of public record. This includes the will written by the decedent. Some individuals may not appreciate these types of affairs becoming public, as a trust is a private matter. Creating a trust allows a person to exercise her right to privacy in drafting an estate plan.
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Disadvantage: Maintenance
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Trusts require some degree of maintenance and planning, and can be initially more expensive to create than a traditional will. In order for the trust to operate, property must be placed into the trust. This requires the grantor (the person creating the trust) to create new accounts in the name of the trust to handle bank accounts or to create new deeds and deed real property into the name of the trust. Further, according to the website Estate Plan Center, if real property needs to be refinanced while it is in the trust, some financial institutions may require the trustee (who is often the grantor in living trust situations) to take the property out of the trust, finalize the refinancing and then retitle the property into the trust.
Disadvantage: Lack of Supervision and Oversight
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Trustees oversee the administration of a trust, and these people must operate according to guidelines set forth in the declaration of trust. Problems may arise with an inexperienced or untrustworthy trustee, and there is no easy route for supervision or oversight, unlike in probate. In probate, the personal representative works with the court, and the court can generally ensure that the representative is acting reasonably pursuant to his authority and capacity.
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