Northeastern Pennsylvania Trust Attorneys

When it comes to estate planning, there are so many moving parts. Do you know what documents you need to protect your family and your assets? Does the size of the estate matter? What about if you have children with disabilities? While you may think a will is the fix-all for your estate plans, there‘s more to consider. You may need a trust, maybe even multiple trusts.

Do I need a will, trust, or both?

Many families panic when they begin the estate planning process. Often, they believe that more is better–more documents, more coverage, more cost. But that actually may not be necessary.

In almost all cases, you need a will in place. In Pennsylvania, if you pass away without a will, it means you have died intestate. This means that all of your property will be distributed according to state intestacy laws. These laws pass your assets to your closest relatives and children, based on arbitrary percentages.

So while everyone needs a will, not everyone needs a trust. However, having a trust is a rather attractive estate planning measure. It’s the preferred option for avoiding taxes, taking care of a loved one with special needs, or helping/creating a charity/organization you are passionate about. If nothing else, you need a trust for the things that can’t go in a will.

Types of Trusts

Trusts are not one-size-fits-all. That’s why you need an experienced estate planning attorney who can guide you through the process. Together, we’ll create a trust that is specific to you and your family’s needs.

Living Trust

Living trusts, or revocable trusts, are created during an individual’s life that can be changed or terminated at any time. The IRS taxes the assets of this trust for both income and estate tax purposes. It’s common to use these trusts to avoid probate, protect privacy, and as a means of continued management in the event of a disability. It’s also common to use these alongside a pour-over will as a basic estate planning document.

The person who creates the trust can revoke it. However, when the only person who can revoke it has died, the trust becomes irrevocable.

Testamentary Trusts

Testamentary trusts, also known as irrevocable trusts, are trusts that cannot be changed once they are created. The rules established at the time of creation will govern who can access the assets in the trust, when they can access them, and for what reasons.

It will also set who is responsible for managing the trust and when the trust will terminate. It’s common to use this type of trust for asset protection and tax avoidance.

Irrevocable trusts cannot be terminated, because the one person who can has now passed or is otherwise unable to communicate changes to the trust. But once the assets of the trust are spent or no longer exist, the trust no longer exists as well.

Grantor Trusts

Grantor trusts are somewhat broad with what is and isn’t a grantor trust. In a grantor trust, the IRS taxes any income the trust earns. These trusts are used for three primary purposes: probate avoidance, asset protection, and income tax reduction.

More or less, a grantor trust is one in which the person who established the trust has retained one or more of the elements of control as listed in the federal income tax code.

Special Needs Trust

Special needs trusts are those created for individuals with physical and/or mental disabilities. These trusts are created when the donor is alive and is often created within a will.

This trust allows the donor to provide care for the needs of a beneficiary. At the same time, it allows the beneficiary to qualify for federal programs such as Supplemental Security Income, Medicaid, and low-income housing.

Medicaid Trust (Income Only Trust)

Someone establishes a Medicaid trust in case the individual needs skilled nursing care in the future. Restrictions built into a Medicaid trust help prevent the assets from disqualifying the creator from medical assistance and protect them from estate recovery.

Charitable Trust

A charitable trust is created for the financial benefit of one or more nonprofit organizations. There are two types:

• Charitable Lead Trust: These trusts pay a set amount/percentage of the trust annually to one or more charities each year for a certain period. The remainder goes to another beneficiary.
• Charitable Remainder Trust: This type of charitable trust provides a set amount or percentage to one or more heirs for a certain period, with the remainder going to charity.