As valuable as they are in estate planning, a trust is not appropriate in every situation. Trust assets sometimes may be held for too long a period to serve a beneficiary (or, in fact, may never be turned over to him). Small trusts can become administrative nuisances. Trusts that made sense for beneficiaries when they were young may be continued unnecessarily.
There are several factors that should be considered when deciding if a trust makes sense:
- Cost-Benefit Analysis:
There are costs associated with setting up and administering a trust. Trustee, lawyer and accountant fees should be considered.
- Suitable Trustee:
If the client cannot find a suitable trustee to manage assets and deal with the beneficiaries, outright dispositions of the property may be preferable.
- Consequences to Beneficiaries:
A grantor's creation of a trust may leave an adult beneficiary with feelings of personal inadequacy or rejection, stemming from a perceived lack of respect for his or her financial skills. If circumstances permit, certain trust beneficiaries may be consulted for their thoughts about possible trust arrangements.
- Periodic Review:
To the extent that the client has the power to change the terms of a trust (as is the case in trusts formed under wills or revocable living trusts), the planner should ascertain whether the client wishes to follow or modify the terms of previous trusts.
