A client came to our Manhattan office last month with what he thought was a simple goal: put his West Village townhouse into an irrevocable trust to protect it for his children. He’d read online that this was the “gold standard” of asset protection. My first question wasn’t about the property’s value, but about his plans for the next twenty years. “What if you want to sell? Or take out a home equity loan for a medical emergency?”
The room went quiet. He hadn’t considered that putting the house in an irrevocable trust meant it wouldn’t truly be his anymore. While trusts are a cornerstone of my practice, they are often presented as a perfect instrument without a frank discussion of their limitations. They are powerful, but they are not right for every person or every asset.
Giving Up Control Is Not a Metaphor
Loss of control is not a theoretical concept. With a revocable trust, you retain full control—you can amend it, revoke it, or move assets in and out at will. It is flexible.
An irrevocable trust is a different creature. When you, the grantor, transfer an asset into an irrevocable trust, you are making a permanent gift. You no longer own it; the trust does. The trustee you appoint has a legal, fiduciary duty to manage that asset for the benefit of your named beneficiaries. That duty is to them—not to you.
This has immediate, practical consequences. If you want to sell the property because the neighborhood has changed or you need the liquidity, you cannot simply decide to do so. The trustee must agree, and the action must be consistent with the trust’s stated purpose and serve the beneficiaries’ best interests. If you have a falling out with a child who is a beneficiary, you cannot simply write them out. The structure is, by design, rigid.
The Ongoing Cost of Administration
A trust is not a document you sign and file away. It is a legal entity that requires ongoing administration, and that administration has costs. The legal fees for drafting a trust that properly reflects your intentions are only the beginning.
If you name a professional or corporate trustee, they will charge an annual fee, typically a percentage of the assets under management. Even if you name a family member, they may need to hire attorneys and accountants to fulfill their duties properly. The trust itself must file its own annual income tax return—IRS Form 1041—which adds another layer of professional fees each year.
Stewardship also requires transparency. Under New York law, beneficiaries have a right to know how the trust is being managed. They can petition the Surrogate’s Court to force a trustee to provide a full financial accounting under SCPA § 2205. This isn’t a simple request—it can be a formal and expensive legal proceeding if the trustee’s records are not in perfect order. A well-run trust demands diligence, and diligence costs money.
Unforeseen Tax and Family Complications
The attempt to solve one problem with a trust can create another, especially with taxes. For instance, gifting a highly appreciated asset like New York real estate to an irrevocable trust can inadvertently trigger a large tax bill for your heirs. The property enters the trust with your original cost basis. When your beneficiaries eventually sell it, they will owe capital gains tax on the full appreciation since you first bought it.
Had they inherited that same property through your will, their cost basis would have been “stepped up” to the fair market value at the time of your death. This step-up can eliminate decades of capital gains, saving the family a substantial sum. Choosing the wrong vehicle for the transfer is a costly error.
The rigidity of a trust can also create family hardship. A parent might create a trust with strict terms, such as distributing only investment income until a child reaches age 40. But what if that child, at 35, faces a medical crisis or a unique business opportunity? The trustee’s hands may be tied by the document, unable to distribute the principal when it is most needed. A plan that lacks prudent contingency options can become a cage for the very people it was designed to protect.
A trust is a formidable tool for legacy planning, but its power comes with significant trade-offs. The decision to use one—and which kind—must be deliberate and fully informed. It requires a clear-eyed assessment of your goals, your family dynamics, and your willingness to cede control.
Before committing a significant asset to a trust, we always begin with a legacy planning session. In this meeting, we map out your family’s needs and your personal goals, then determine which legal structure—a trust, a will, or a combination of instruments—is the most prudent vehicle for your life’s work.
