Trusts: the Good, the Bad and the Ugly

To an estate planner, trusts can seem like magic. They can avoid probate, save taxes, protect privacy, and help carry out your wishes with precision. But like most powerful tools, they need to be used thoughtfully. There are different types of trusts and many ways to structure them, and each comes with its own pros, cons, and traps for the unwary.

With trusts, there is the good, the bad and the ugly (well, not so much ugly).

Here’s a guide to understanding when a trust makes sense—and what to look out for.

The Good: Why People Use Trusts

Trusts are extremely popular for good reason:

• Avoiding probate — assets in a trust usually pass outside the court process, saving time and expense.

• Protecting privacy — a trust isn’t a public record like a will.

• Tax planning — married couples can use trusts to preserve both spouses’ estate tax exemptions.

• Asset protection — properly designed trusts can help shield inheritances from creditors, lawsuits, or divorces.

• Simplifying management — if you become incapacitated, your successor trustee can step in seamlessly.

For couples, joint trusts can be appealing because they keep everything in one place, jointly owned and jointly managed. They can simplify how property is divided for tax purposes and help maintain the “community property” character of assets in Washington and other community property states

The Bad (and Even Ugly): Where Trusts Go Wrong

Trusts don’t automatically simplify everything. Common pitfalls include:

• Drafting complexity — joint trusts, in particular, can get confusing when one spouse dies. They often divide into multiple subtrusts (for tax or inheritance purposes), which can be difficult to administer. I always push for simplicity.

• Mismatched ownership — if assets aren’t titled correctly, the trust may not work as intended.

• Irrevocability traps — some trusts become partly or completely “locked” after the first spouse’s death, leaving the survivor with limited flexibility.

• Administrative burden — dividing, tracking, and retitling assets can be time-consuming and prone to errors.

The bottom line: a poorly designed or poorly maintained trust can create more work and confusion than it solves.

Key Design Decisions

When setting up a trust, some of the most important decisions include:

• How assets are owned — all 50/50 between spouses, or with separate schedules for each?

• Who can amend or revoke the trust — both together, or separately for each share?

• What happens at the first death — does everything stay in one trust, split into two, or fund a “bypass” or “disclaimer” trust for tax planning?

• Who can remove a trustee — is it a doctor’s note, a family vote, or a named trust protector?

• Which state’s law applies — Oregon, Washington, or wherever the trustee moves? Situs (place of administration) can affect both flexibility and taxation.

Each of these choices affects taxes, family dynamics, and how easy it will be to manage the trust later

Finding the Right Balance

No two families are the same. Some couples want simplicity and maximum flexibility. Others have blended families, tax concerns, or children from prior relationships. For them, a carefully divided plan—with some assets protected and others freely available—can prevent conflict and reduce taxes down the road.

Think of a trust as a framework, not a one-size-fits-all product. The key is designing one that fits your family, your assets, and your goals.

In Summary

Trusts are not just for the wealthy, but they do require thoughtful design and ongoing attention. When used wisely, they can protect your loved ones, minimize taxes, and make things far smoother during difficult times. When misused or neglected, they can create expensive headaches.

At Next Phase Law, we help clients build plans that actually work—plans that are flexible, clear, and designed for real families, not theoretical ones.

Have questions about whether a trust makes sense for you (Or whether it’s time to update your trust)?Let’s schedule a conversation.