Is A Trust Too Expensive To Manage?

Why would I want to leave my estate in trust for my child instead of leaving it outright with no strings attached? Why would I leave my estate in trust for my child when it is going to be very costly to manage?

Surely, leaving your estate outright to your child is easier and certainly less expensive than leaving it in trust. But is it really? Let’s look at some examples. When assets are held in trust these assets are usually not subject to creditors claims. Assume you leave your estate outright to your daughter and she decides to start a business by borrowing money. Should the business fail the creditor will attach her assets and there goes her inheritance that you had hoped that would one day be passed on to your grandchild.

Had you left the estate in trust, with proper limitations her creditors would not be able to attach the trust assets. Your daughter would have derived benefit from the trust during her lifetime and the remainder interest would have passed to your grandchild. Another example, assume your daughter receives your estate outright and decides to place it in joint tenancy with her husband. She dies… he walks away with her inheritance. Are your grandchildren provided for? Maybe not! Had you left the inheritance or part of the inheritance in trust he would not have any claim to these assets. And you would be sure that your grandchildren receive the inheritance due your daughter.

But it’s so expensive to have a professional trustee. Let’s see, a trustee in New Jersey would charge approximately 1% on the market value of the assets each year. Is this more costly than leaving the estate outright?

Let’s go back to the grandchildren issue. Let’s assume the examples described never occurred. However, you know that your daughter has never been able to manage money effectively. In other words she is a spendthrift. How are you going to be sure that there will be enough assets left to send your grandchildren to college, which was part of your goal when you left the estate to her as an outright gift? You can’t! The only way to be sure is to leave all or a portion of your estate in trust for your daughter with a provision that the trust assets can be used to educate your grandchildren.