A client from Manhattan sat in my office last week, convinced he needed a complex irrevocable trust. He’d read online that it was the only way to protect his assets from future creditors and reduce estate taxes. My first question wasn’t about his brokerage accounts, though. It was about his family, his goals, and his comfort with control. Because a trust, for all its power as a tool of stewardship, is not a universal fix.
For many New York families, a trust is the cornerstone of a prudent estate plan. It can bypass the delays and public nature of Surrogate’s Court, provide for a loved one with special needs, or create a structure for generational wealth. But I have seen situations where creating a trust—particularly an irrevocable one—was the wrong decision. You must approach this with eyes wide open, understanding not just the benefits, but the very real trade-offs.
Giving Up Control Is a Deliberate Choice
The most significant downside of certain trusts is the loss of control. This is the central bargain of an irrevocable trust. To gain benefits like asset protection or removal of assets from your taxable estate, you must give them away. Legally. You transfer assets to a trustee who manages them for your beneficiaries. You can no longer sell that property on a whim or change the beneficiaries if you have a change of heart.
While a revocable living trust keeps you in complete control during your lifetime—you can amend it, revoke it, or move assets in and out as you please—it offers no creditor or tax protection. The irrevocable trust offers that protection precisely because you have relinquished control. Many clients find this concept jarring. They want the protection without the price. The law, however, demands the price be paid. Deciding to place assets beyond your own reach is a profound act of planning, and it’s not a fit for everyone.
The Real Costs of Administration
A trust is not a document you sign and file away. It is a living legal entity that requires ongoing administration, and that administration has costs. While a trust may help your heirs avoid the costs of probate, it introduces its own set of expenses during your lifetime and after.
These can include:
- Legal and Setup Fees: Drafting a trust properly requires more intensive legal work than a simple will. It is a more complex instrument designed for more specific outcomes.
- Trustee Fees: If you name a professional or corporate trustee—a bank or trust company—they will charge a fee, often a percentage of the assets under management. Even a family member acting as trustee is entitled to compensation and is often wise to hire professionals to assist them.
- Accounting and Tax Preparation: An irrevocable trust is a separate taxpayer. It must file its own annual income tax return (Form 1041). This requires careful record-keeping and separate tax preparation, which is an ongoing annual expense.
These costs are manageable and often well worth the benefits a trust provides. But they are not trivial. A simple will may be a more cost-effective instrument for an estate with straightforward assets and family dynamics.
The Burden of the Fiduciary
Serving as a trustee is not an honorary title; it is a demanding job with significant legal responsibilities. We often see clients who want to name a child or a sibling as trustee to save on fees, without fully appreciating the burden they are placing on that person. A trustee is a fiduciary, held to one of the highest standards of care under the law.
In New York, the Estates, Powers and Trusts Law (EPTL) sets out the rules. For instance, EPTL § 11-1.7 expressly prohibits a grantor from exonerating a trustee from liability for failing to exercise “reasonable care, diligence and prudence.” The law does not permit a trustee to be negligent. They must act in the best interests of the beneficiaries, manage investments prudently, account for every dollar, and communicate effectively. This can create friction within families, especially when one sibling is making financial decisions for others. Naming a trustee is a decision that requires a clear-eyed assessment of their financial acumen, impartiality, and willingness to do the work.
A trust is an instrument of profound intention. When used correctly, it can protect a family’s legacy for generations. But it is not the only tool, and sometimes a simpler approach is the more prudent one. The goal is not to create the most complex legal structure, but the one that best serves your family’s future.
The first step in making this determination is to understand what you already have. If you’re considering a trust or wondering if your existing plan is appropriate, we can begin with a detailed review of your current will, asset titles, and beneficiary designations.
