The grantor created a "living" trust, also popular as an "inter vivos" trust. When you pass away as a grantor, the assets in the trust are given to the beneficiaries you specify in your living trust. You might also use a will, but wills must go through the simplified probate process, which is the legal procedure that controls how your assets are distributed to your beneficiaries.
When a Grantor (the person who establishes the trust) transfers assets into the trust and may revoke or modify the trust at any time, the trust is called a revocable living trust. A revocable trust may be considered an extended version of your will. The grantor may terminate the trust at any time. The probate process can be avoided when a grantor successfully transfers all assets into the trust before passing away.
Because the asset owner retains control over the trust assets, it does not provide asset protection or abolish federal estate or state inheritance taxes. Revocable living trusts come in various forms and are created for multiple objectives. With revocable trusts, the grantor can permit the handling of trust assets to a successor trustee. The grantor may serve as the trust's trustee or beneficiary.
An irrevocable trust is established when a grantor transfers assets into a trust that the grantor cannot amend. It clearly states in the document that it cannot be modified. The trust won't function as irreversible if it doesn't declare an irrevocable living trust.
Irrevocable trusts are generally not subject to taxation upon the grantor's death and cannot be easily accessed by creditors. It is because they cannot be altered or canceled by the grantor after they have been established. The grantor does not own the assets, in contrast to a revocable Trust. The assets in an irrevocable trust are excluded from your taxable estate (life insurance must be excluded).
An irrevocable trust will also escape probate, similar to a revocable trust. The Medicare nursing home spend-down regulations, which call for people to spend down all their assets before entering a nursing home, can be avoided with a certain kind of irrevocable trust. An irrevocable trust must appoint an independent trustee. A trustee must account for any benefits they may receive directly or indirectly through a trust under rigorous legal guidelines. Several trust laws bind a trustee:
A living trust might save your loved ones a lot of time, trouble, and money when you transfer your property to beneficiaries after your passing. Property left in a will (rather than a living trust) may be held in probate court for months or even years, resulting in court costs and attorneys' fees. In contrast, assets left in a trust can frequently be given to your beneficiaries immediately without legal counsel.
Unfortunately, Pennsylvania is not one of the states that have entirely embraced the Uniform Probate Code. Pennsylvania offers a streamlined probate procedure for "small" estates valued at $50,000 or less after subtracting the value of the real estate, expensive cars, payments to the family, and funeral expenses.
You might not need to worry about creating a living trust if your estate is eligible for this shortcut to probate, known as a "settlement of small estate," because the probate procedure will be quick, simple, and reasonably priced.
A revocable trust may be preferable to a Will in Pennsylvania due to several factors. A Pennsylvania revocable trust has several benefits for your estate plan, including avoiding Pennsylvania probate, preparing for incapacity, avoiding ancillary estate administration (in another state), and avoiding potential Will challenges. These benefits must be considered in light of a client's unique requirements and circumstances because they are not always considerable.
The expenses associated with probating a will might be high in some states. Making a revocable trust would be helpful in certain circumstances since the estate assets would not be subject to probate. This would result in considerable financial savings for the estate. However, because probate fees are so low in Pennsylvania, people rarely give them any thought when determining whether to create a will or a revocable trust.
You will still require a will, albeit it may never be used. However, you should still create one for a few good reasons.
A guardian must be named for minor children. You cannot designate a guardian for your minor children through a trust. If you have little children, you should make a will that names the guardian for this reason.
You need a Will to consider any assets you haven't given your trust yet. People frequently create trusts but fail to transfer ownership of existing assets to the trust formally. They often also acquire or inherit property and forget to transfer ownership as the trustee of their trust. In either case, the assets won't be allocated following the trust's rules. You must have a will as a backup to specify how property not included as a trust property should be divided.
If you don't have a will, Pennsylvania state law will determine which of your closest relatives will inherit any property that isn't transferred via your living trust or another means, such as joint tenancy.
A few options are available in Pennsylvania for setting up a living trust, but your method will affect your costs. Using an online manual or application, you can create trust on your own if you like. Most likely, you'll spend little more than a few hundred dollars. Additionally, DIY estate preparation is less expensive than employing a lawyer, although some hazards are involved.
If you decide to work with a lawyer, expect to pay at least $1,000. Compared to DIY planning, this strategy could be less dangerous, but it will cost you more. You must also include your legal expenses, such as legal fees, and seek a lawyer for estate preparation and living trusts.
In Pennsylvania, as the grantor, you place your assets in the trust when you create a living trust. Although the intention is to put as many assets as possible into the trust, some assets, like life insurance and retirement funds, cannot be retained by a trust. You need a trustee to oversee the trust's management. The trust's assets can be used for your benefit during your lifetime. Although you can choose anybody you choose to be your trustee, most individuals pick themselves.
A successor trustee must be designated to manage the trust after your passing. He/she will transfer the assets to the beneficiaries following your defined rules. Throughout your life, you can alter or remove your revocable trust. An irrevocable trust cannot be modified once it is created. A revocable trust will be considered an irrevocable trust after your death.
A will is approved by the court and put into effect through the process known as probate. Probate can take several months, cost money for an attorney, an executor, and court costs. Before probate is over, assets left by a will cannot be dispersed.
You can completely avoid probate in Pennsylvania if you have a living trust. Trust assets can not go through probate and may be distributed whenever you choose, right away after your passing. Your trust enables you to avoid probate in all of the states where you have assets if you do.
Pennsylvania's processes are regarded as complex because the state has not ratified the Uniform Probate Code. If, however, your estate is worth $50,000 or less when you pass away, a small estate probate process is an option. This straightforward process is more practical, less expensive, and less expensive than setting up a trust.
In Pennsylvania, a living trust is created as follows:
Most likely not. However, because the federal estate tax is only assessed on estates valued at close to $12 million, most people do not need to be concerned about it. Although Pennsylvania has a state inheritance tax, it does not have its own estate tax.
You might be able to use a more complex trust (such as an AB trust) to decrease or avoid federal estate taxes if your estate is worth close to $12 million or if your estate plus the estate of your spouse or partner is close to $24 million.
Updated on: July 25, 2023