What Are the Disadvantages of a Trust?

Planning for the future is an important step for protecting your family and your assets. Many people in the United States use estate planning tools like a trust or a will to decide what happens to their property after they pass away. While a trust offers many benefits, it is not the right choice for everyone. Understanding the trust disadvantages can help you make a smarter decision for your situation.

In this article, we will explain the disadvantages of a trust so you can decide if a trust or a will is best for your estate plan.

What Is a Trust?

A trust is a legal arrangement where one person, called the grantor, places assets into a trust account. A trustee then manages those assets for the benefit of one or more beneficiaries. Assets in a trust can include cash, real estate, investments, or personal property.

Trusts are often used to avoid probate, keep estate matters private, and manage assets for children or loved ones. Even with these benefits, there are several downsides you should understand before creating one.

1. A Trust Can Be Expensive to Set Up

One of the biggest trust disadvantages is cost. Creating a trust usually costs more than creating a simple will. You may need to pay for:

• Legal fees
  
  
• Trust preparation costs
  
  
• Fees to transfer assets into the trust
  
  

A will is often much cheaper and quicker to prepare. If your estate is small or simple, the cost of a trust may outweigh its benefits.

2. Trusts Are More Complicated Than a Will

A trust requires more planning and paperwork than a will. You must:

• Decide which assets go into the trust
  
  
• Retitle property and accounts
  
  
• Choose a trustee and backup trustee
  
  

This process can feel overwhelming, especially if you are not familiar with estate planning. A will, on the other hand, is usually easier to understand and complete.

3. Trusts Require Ongoing Management

Unlike a will, which only takes effect after death, a trust must be managed during your lifetime. This includes:

• Keeping records of trust assets
  
  
• Managing trust investments
  
  
• Filing trust-related tax documents
  
  

This ongoing responsibility is a major trust disadvantage for people who prefer a hands-off approach.

4. Assets Must Be Properly Funded Into the Trust

Creating a trust alone is not enough. You must move your assets into the trust account for the trust to work correctly. This can include:

• Changing property deeds
  
  
• Retitling bank accounts
  
  
• Updating investment accounts
  
  

If assets are not transferred properly, they may still go through probate, defeating one of the main reasons for having a trust.

5. You May Lose Some Control Over Your Assets

When you place assets into a trust, they legally belong to the trust, not you. Even if you are the trustee, there are rules you must follow. This can feel restrictive for some people.

For irrevocable trusts, you usually cannot take assets back or change terms easily. This loss of control is one of the most serious trust disadvantages.

6. Some Trusts Are Hard to Change

Not all trusts offer flexibility. Irrevocable trusts generally cannot be changed once they are created. This means:

• You may not be able to update beneficiaries
  
  
• You cannot easily change how assets are distributed
  
  
• Court approval may be required for changes
  
  

A will is usually much easier to update if your family or financial situation changes.

7. Trusts Can Have Higher Tax Rates

Trusts are taxed differently from individuals. In some cases, trusts reach higher tax brackets much faster. If income stays inside the trust instead of being distributed, the trust may owe more in taxes.

This tax issue is often overlooked and can be a major trust disadvantage if the trust is not set up properly.

8. Recordkeeping Can Be Time-Consuming

Trusts require detailed and accurate records. Trustees must track:

• All trust assets
  
  
• Income and expenses
  
  
• Distributions to beneficiaries
  
  

Poor recordkeeping can lead to confusion, disputes, or legal problems later. This extra responsibility may be stressful for trustees and family members.

9. Borrowing Against Trust Property Can Be Difficult

If you want to refinance a home or borrow money using property in a trust, lenders may require extra steps. In some cases, assets must be temporarily removed from the trust and later transferred back.

This extra work can slow down the process and add frustration.

Trust vs. Will: Which Is Better?

A will is a legal document that explains how your assets should be distributed after your death. Compared to a trust, a will is:

• Easier to create
  
  
• Less expensive
  
  
• Simpler to update
  
  

However, a will must go through probate and become part of the public record. A trust avoids probate but comes with higher costs and more complexity. Choosing between a trust and a will depends on your goals, assets, and family needs.

When a Trust May Not Be the Best Choice

A trust may not be ideal if:

• Your estate is small
  
  
• You want a simple estate plan
  
  
• You are concerned about cost
  
  
• You prefer flexibility
  
  

In these cases, a well-written will may meet your needs without the added burden of a trust.

Understanding the trust disadvantages is essential before choosing a trust over a will. The right estate plan depends on your personal goals and financial situation.

Talk to Doane & Doane today to get clear guidance on whether a trust or a will is right for you.

FAQs About Trust Disadvantages