One of the most common ways to protect your assets for your beneficiaries when you pass away is by putting them into a trust. However, there are several costs you need to be aware of before you set one up. There may be “hidden” costs that could impact how your trust is managed while you are still living and your beneficiaries being able to access the assets contained within the trust once you pass away.
Your estate planning attorney can help you set up your trust correctly from the start and ensure you have budgeted for these hidden costs accordingly. Here are some of the most common trust expenses that may be overlooked and how you can minimize or avoid unnecessary expenses.
Common Hidden Costs of Trusts
There is no denying that trusts can be one of the best ways to protect your assets for your beneficiaries when you pass away. However, there are many costs that may not initially be disclosed. Fortunately, your estate planning lawyer with Beckstrom & Beckstrom could help you prepare accordingly. Here are some of the most common “hidden” costs of trusts:
| Potential Hidden Costs |
| Legal Fees |
| Trustee Fees |
| Accounting Costs |
| Tax Considerations |
| Specialty Fees |
| Trust Modifications |
Legal Fees
Multiple legal fees may apply when setting up a trust. Not only do you need to cover your attorney’s fees, but the cost of setting up a trust can be up to $10,000 or more, depending on the complexity of the trust. Then, you need to make sure you are prepared to cover the administration fees.
For a standard trust, attorney’s fees for administration could reach or exceed $10,000. If the trust is more complex and involves estate tax issues or beneficiary disputes, these expenses could increase. You should also be prepared to pay a fee if you need to modify the trust at any time. Simple modifications could range anywhere from $300-$500 according to SmartAsset.
Trustee Fees
The person responsible for assuming your role over the trust is known as the successor trustee. The trust will determine how much the trustee is paid for their responsibilities. The trustee will handle the management of the trust and ensure beneficiaries receive the assets they are entitled to as described in your estate plans.
In some cases, individuals who create the trust will hire co-trustees or paid third parties who can act in the trust’s best interest based on your intended goals. Your paid successor trustee can also take over your responsibilities if you become incapacitated and unable to manage your own affairs.
Accounting Costs
It is also important to budget for your trust accounting fees. Depending on the size of the trust, the accountant responsible for processing investments, such as stocks, or real estate, may be entitled to additional compensation. The type of trust you set up, the complexity of your assets or gifts, and how you fund your trust can all determine how much it is going to cost to create and maintain your trust for the duration of your lifetime.
Tax Considerations
Planning for potential tax implications should also be a top priority. You want your beneficiaries to retain as much of your assets as possible without having to pay high penalties. The funds received from a trust are not taxed the way funds taken out of other types of investment accounts are.
Although your beneficiaries must pay taxes on distribution and income from the trust, your beneficiaries do not have to pay taxes on principles from the trust assets. We can help you budget accordingly so you can keep as much of your assets in the trust as possible.
Specialty Fees
There may be specialty fees that apply depending on the types of assets held within your trust. For instance, if your trust holds a business, accredited appraisers may need to be called on to conduct official evaluations of the business. There is no set fee for these costs, as these types of experts can set their own fees. However, your estate planning lawyer may be able to recommend reputable specialty providers so you can find a reputable specialist.
Making Changes To Your Trust
When you set up a revocable trust, you can make changes to it at any time. For instance, when you first set up the trust, you may not have started having children. But once you do, you may want to set up sub-trusts for them. When you modify an existing trust, there will likely be a fee.
The exact cost will vary depending on the type of changes you are making to your trust provisions. Generally, drafting revisions can cost upwards of 30% of the original drafting price.
Steps to Minimize or Avoid Unnecessary Expenses
Minimizing and avoiding unnecessary expenses is crucial. The goal is to ensure your beneficiaries retain as much of your trust assets as possible. With hidden costs, this could diminish the amount your beneficiaries can obtain upon your passing. Some of the best ways to avoid these unnecessary expenses include:
- Choosing a competent successor trustee who understands and embraces their responsibilities, and has experience managing trusts that are similar in complexity or size.
- Set up your trust in a low-cost state to minimize potential tax liabilities.
- Update and review your trust documents regularly to ensure the trust meets your current asset distribution plans and needs.
- Do not transfer unnecessary assets into a trust.
- Choose the right type of trust that aligns with your estate plans.
- Optimize your trust administration process and structure.
- Get the advice of a high-powered estate planning lawyer.
- Take advantage of gift strategies, including lifetime gifts to beneficiaries within the IRS annual gift tax exclusions which can minimize your taxable estate.
- Make sure your trust documents are drafted correctly the first time to reduce legal fees.
It may also be in your best interest to hire a professional trust management team. You can hire your estate planning lawyer or a third-party manager to minimize losses and optimize trust assets. By addressing potential issues proactively, you can reduce and avoid hidden costs. Be sure to openly communicate with your beneficiaries. It is important to keep beneficiaries up-to-date about what they should expect from the trust if anything. This can help reduce instances of trust disputes and potential litigation.
Tip: Ask your attorney about the tax implications, the consequences of withdrawing from a trust, and which property or assets should be put into a trust if you hope to avoid surprises.[1]
Create Your Trust With Our Reputable Estate Planning Attorneys
No matter what type of trust you are setting up, it is important to prepare for all possible expenses. You do not want to be caught by surprise by successor trustee fees, legal expenses, or other “hidden” costs. When you create your trust with a highly knowledgeable estate planning lawyer from Beckstrom & Beckstrom, you can ensure you are prepared for all possible expenses that may arise as we set up, manage, and administer your trust.
Learn more about which trust is the best fit for your estate plans when you contact our law office to request a confidential consultation. Reach us through our quick contact form or by phone to get started as soon as today.
