Sometimes a last will and testament is not enough for your estate planning and you need more protection, control, and tax benefits than can only be provided if you set up a living trust. However, while many think a living trust only makes sense for high net worth individuals, it can provide many benefits that help most folks here in Pennsylvania prepare the future for their loved ones in ways they could never have imagined. An experienced estate planning attorney can help you with setting up a living trust, and making the adjustments you need along the way to make sure you get the most out of this estate planning tool.
What is a Living Trust?
Also known as an inter vivos trust, a living trust is a legal arrangement whereby you place all or most of your assets into a legal entity called a trust. This has a number of benefits that can be helpful to most individuals here in Pennsylvania. For example, it allows you to manage your assets, such as real estate, personal property, bank accounts, and investments, either doing it yourself as grantor or having a person you appoint called a trustee handle the matters on your behalf.
In addition, assets that are placed into a living trust can be more easily passed to the people you designate as beneficiaries, whether your relatives, friends, or even your favorite charities. Normally, when a person dies in Pennsylvania, his or her estate will have to pass through a legal process called probate. This involves the filing of a will with the probate court, as well as having a judge supervise the payment of your creditors and the transfer of your assets to the heirs either named in your will or, if you die without a will, those relatives under Pennsylvania’s intestacy law. Not only is this costly in time and money, but it also leads to your affairs being made public. By avoiding probate, your estate will not only save on the expenses and time, but you will also be able to keep your assets private.
Finally, a living trust gives you more flexibility in planning the transfer of your assets after you die. As a result, there are ways they can be set up to go into effect if you are incapacitated. If this unfortunately occurs, your trustee can begin running your estate instead of waiting until you die, which is the case with a will.
What are the types of Living Trusts?
In general, there are two types of living trusts, a revocable living trust and an irrevocable living trust. The main difference between the two is that under a revocable living trust, you can remain in control by managing your assets while you are alive and, as its name implies, you can make changes to or revoke the trust at any time while you are alive. This can include removing assets from the trust to pay for your expenses. Under an irrevocable trust, assets that pass into the trust come under the control of the trustee, and it is very difficult to change the trust after it has been established.
The biggest benefit of a revocable trust is that you will remain in control. The assets are still your property, and you can do with them as you like. You can also make changes to the trust, such as if you want to add a new beneficiary or alter how things will be distributed upon your death. The downside is that your beneficiaries may have to pay estate tax for anything they inherit from the trust, and the assets you place into the trust are not protected from your creditors if you get sued by them.
An irrevocable trust can be complicated, in that you no longer have control over your assets. For example, if you want to use funds from a bank account inside the irrevocable trust to go on a vacation, you cannot do so without the approval of the trustee. In addition, you need the consent of the trustee and all of the beneficiaries to change or terminate the trust. Nevertheless, there are a number of benefits to setting up an irrevocable trust. First, the assets are shielded from your creditors, including a disgruntled beneficiary. Second, you can reduce the estate taxes that might otherwise have to be paid by your beneficiaries. This tax planning advantage is a unique benefit of an irrevocable trust. Finally, irrevocable trusts are ideal if you have a beneficiary who has special needs. This type of living trust safeguards assets, allowing you to set up a means to provide for their care after you are gone.
What are the Cost Considerations of Living Trusts?
One thing that you should keep in mind is that a living trust is much more complicated than a simple last will and testament. There needs to be more planning involved, which can drive up the costs associated with creating and maintaining one. This includes increased legal fees. However, you should keep in mind that the upfront cost may be worth it, as a living trust can provide better estate planning and reduce the issues your loved ones may encounter with your estate after you are gone.
Contact an Estate Planning Attorney Today
A living trust can be an important part of your estate plan. In addition to eliminating the hassle of probate, a living trust can help you make sure that your loved ones are provided for in the future. The experienced estate planning attorneys at Jones Gregg Creehan & Gerace can help you through the process of creating a living trust, helping you choose one that is right for your personal situation. Contact us today for a consultation on a living trust.