Trusts are an important and effective estate planning tool. And when you create a trust, you get to choose not only its purpose but also how long it should remain in effect. Many estate planning trusts simply facilitate the transfer of assets to heirs and the wrap-up of the estate. But others can last for many years.
Which should you use? Should your trusts last longer than the minimum? The answer may be yes. To help you decide the right trust time frames, here are a few of the pros and cons of long trust terms.
Pros of a Long-Term Trust
Keeping a trust in operation for years allows it to administer assets for the beneficiaries. The most common uses for this are special needs trusts or trusts for others who can't manage their own finances or affairs. Because you set up and fund the trust, you get to decide who manages it and the terms of that management. You can care for a loved one or an asset for many years after you're gone.
Longer terms also set up guardrails for certain heirs or assets. For instance, if you want to leave money to a spendthrift adult child, you may not want to simply hand them a check and hope they don't blow it. You could, instead, structure a trust to earn income for the beneficiary and a more level-headed person to oversee assets and distribute money on a set schedule. Then, you decide how long this arrangement should last.
Cons of a Long-Term Trust
There are a few common problems with a trust that lasts for years or decades. The first — and potentially the biggest — is that it will be more expensive. You may have to pay for professionals as well as administration expenses for years. This reduces the amount of overall money available to the beneficiaries.
A second challenge is finding someone to serve as a trustee for as long as you need them to. Trustees can be paid, but many family members do the job for little or no compensation beyond expenses. Can your trustee and backup trustee play this role for many years?
Finally, putting assets in a trust rather than distributing them outright can be a sensitive subject. An heir might resent your interference in their life or what they want to do with their inheritance. They may not feel independent or trusted. It can also cause conflict among heirs who are all linked for years through the trust.
Where to Start
A long-term trust is a smart tool in the right circumstances, but it's not right for everything. Start determining the best use of trusts in your estate by meeting with an estate planning attorney in your state today. For more information, contact an estate planning attorney near you.