There can be many reasons to create a trust, but you may be wondering what are the disadvantages of a trust in California? Trusts offer a way to control and protect personal assets. Taking the time to create one with the assistance of an experienced Orange County trusts lawyer can help spare you certain estate taxes or possible probate fees.
Despite these things, trusts come with their own drawbacks. A trust might not be the right choice for everyone, depending on what goals you have for creating said trust. Having a wider understanding of how a trust could prove to be a disadvantage for your estate will help you make an informed decision on your estate planning goals.
Kinds of Trusts
In the state of California, there are several types of trusts that may be created. Most common are either a revocable trust or an irrevocable trust. Both are established by the trustor or the person responsible for transferring funds and assets into the trust. When weighing the disadvantages of establishing a trust, it is prudent to know how each kind works.
- Revocable Trust: This kind of trust is created when the trustor is still alive. Meaning it can be updated, edited, terminated, or withdrawn. At any point in time, the trustor can change the terms of the trust or cancel it without seeking approval from the beneficiaries.
- Irrevocable Trust: In simplest terms, an irrevocable trust cannot be modified or revoked. At the time of establishment, the trustor gives up all rights to alter or end the trust for the duration of their lifetime.
- Other Trusts: In addition, a living trust can be created under the umbrella of either a revocable or irrevocable trust. A living trust is made and put into place while the trustor is still alive. A testamentary trust is typically created under a will and goes into effect when the trustor passes. Charitable trusts are established to transfer assets to a charity or nonprofit organization after the death of the trustor.
Cost of Trust Creation
One of the potential downsides to creating a trust is the costs involved. Due to its complicated nature, a trust is often more expensive to establish than a will. The cost of creating a trust in California is dependent on your attorney’s experience, location, and the complexity of the potential trustor’s estate and goals. Californians with smaller estates that may not own real estate or highly valued assets might find it more appropriate to establish a last will and testament-based estate plan.
Employing the assistance of a California trust attorney can help make this process less complicated for you, and you can rest assured in the security of the trust, but some people may find that the cost outweighs the protection and value added.
Continued Maintenance and Organization
Once a trust has been created, there is still plenty of work to be done. A level of management and record-keeping is required to ensure that all funds and assets are properly handled and funneled through the trust. A trustee, or a person who maintains and oversees the operations of a trust, will need to be hired. If the trustee brought on is a professional, additional costs will be incurred.
The Potential for Conflict
All families can be messy and after the establishment of a trust, there is always the potential for conflicts to arise. Especially if there are beneficiaries who believe they are not being treated equally, with the same amount of respect, or as fairly as other beneficiaries of the trust.
Additionally, there is always the possibility of needing to terminate a trustee’s involvement. This could prove necessary if the trustee is found to be misusing or mismanaging funds, using funds and assets for their own purposes, or if the trustee is charging unreasonable fees for their services. There is also potential for the trustee to become ill, found incapacitated, whether in a physical or mental manner, or pass away.
Additional costs may develop whether conflict ensues due to family disputes or legal matters.
FAQs
Q: What Is the Downside of a Living Trust in California?
A: In the state of California, one downside is though it’s true that a living trust can heighten your chances of avoiding probate, this is not a guarantee. Another reason is that establishment of a living trust will not offer any tax advantages and the trustor could find themselves liable to pay estate taxes at the time of their passing.
Q: What Are the Drawbacks of Putting Your House in a Trust?
A: When trying to decide whether or not to place your home into a trust, it is prudent to consider the following drawbacks:
- The price of maintaining a trust containing a property can be significantly more expensive than placing that property in a will.
- When creating an irrevocable trust, you give up the chance of any change in terms or beneficiaries.
- After placing your home in a trust, you may still have to go through probate for other owned assets. It may be wise to transfer these to the trust in addition.
Q: What Are the Negatives of a Trust vs a Will?
A: The main negative to a trust versus a will is the initial cost of planning said trust. Where an irrevocable trust is practically impossible to change or update, a will is much easier to change. In fact, you can change a will several times over the course of your life.
Q: Why Put a House in a Trust in California?
A: One of the potential motives for placing a home into a trust is having control over how and when the property is given to the beneficiaries. An attractive reason for this is if the beneficiary is a minor child who is not yet ready to inherit a home but would be once they come of age.
Seek Legal Counsel Today
If you find yourself wondering if trust establishment is the right option for you, it is prudent to contact a skilled California trust attorney. They can assist you in making an informed decision and help you navigate all the potential options in choosing the right plan for your unique estate plan. The team at the Law Office of Christopher P. Walker, P.C., is ready to start this process today.