What is a Trust?
A trust is a legal arrangement that allows you to retitle assets from your name individually to being owned by a separate entity, known as a trust. Funding the trust or placing property into the trust serves to benefit certain individuals who will receive the assets or property at a designated time. The trustee is given the task of managing assets within the trust and distributing the assets in accordance with the terms of the trust. Depending on the type of trust, placing property in the trust can protect assets and, in some cases, can even come with tax benefits.
At Cunningham, Chernicoff & Warshawsky, P.C., we listen to your estate planning needs to determine which type of trust will benefit you and your loved ones. If you are interested in learning more about trust planning, do not hesitate to contact our PA estate planning lawyers.
Trust Positions
- Grantor or Settlor: The person who creates the trust; by funding the trust, assets will transfer from being owned by the grantor individually to being owned by the trust.
- Trustee: A fiduciary role, the trustee manages assets or property in a trust for the benefit of beneficiaries. In a revocable trust, the grantor can also be named the trustee, while naming a successor trustee who will take over handling the trust upon the grantor’s death or incapacitation.
- Beneficiary: Trust assets and property are distributed according to the terms of the trust to beneficiaries. Certain trusts will allow beneficiaries to receive property without having to pass through probate.
Types of Trusts
Based on your needs, our PA estate planning lawyers will suggest certain types of trust arrangements. Below, we discuss three types of trusts and the benefits of each:
Revocable Living Trust
A revocable living trust, also known as an “inter vivos trust,” is created during the grantor’s lifetime. It allows the grantor to specify how assets will be distributed to beneficiaries upon his or her death while avoiding probate. A revocable living trust gives the grantor the authority to change the terms of the trust and even remove and appoint new trustees during his or her lifetime. Revocable living trusts become irrevocable upon the grantor’s death. A revocable living trust, while separate from the individual who created it, is not a separate “taxpayer” and all income tax aspects of a revocable living trust are borne by the grantor/settlor.
Testamentary Trust
Some people choose to create a trust within their will, protecting estate assets available for distribution for the benefit of loved ones. Known as a testamentary trust, it does come with tax advantages, but assets will still be subject to the probate court process and may only be modified by a court order and/or the consent of all beneficiaries.
Irrevocable Trust
An irrevocable trust is also created during the grantor’s lifetime. It allows the grantor to specify how assets will be distributed to beneficiaries upon certain events (including the death of the grantor/settlor).
An irrevocable trust does not allow the grantor the authority to change the terms of the trust during his or her lifetime and may only be modified by a court order and/or the consent of all beneficiaries. An irrevocable trust is separate from the individual who created it, is a separate “taxpayer” and all income tax aspects of an irrevocable trust are borne by the Trust. Some Irrevocable trusts are used to purchase and hold life insurance, the proceeds of which may be used after the death of the individual who created it, to pay taxes and post-death expenses. This is called an Irrevocable Life Insurance Trust (ILIT) and may be used more frequently if the Federal Estate Tax Exclusion is reduced (from about $12 Million today), which is likely to happen (just how much??) by the end of 2025, when the 2017 tax reform benefits are due to expire. In the absence of Congressional action, the exclusion would reduce to $1 Million, but it is likely that it will be replaced by a $5 Million exclusion.
Speak with Our PA Estate Planning Attorneys Today
Trust planning is not necessary for everyone, but it may be the right choice for certain individuals depending on the size of your estate and your individual needs. At Cunningham, Chernicoff & Warshawsky, P.C., we have been providing central Pennsylvania legal services for over 43 years and plan to help generations to come. If you would like to learn more about our trust services, our PA estate planning lawyers are more than happy to assist you. To arrange your free consultation, contact us online or by phone today.