Common Types of Trusts Used in Pennsylvania Estate Planning
Trusts are common tools used in estate planning to protect an individual’s assets and control distribution after a Grantor’s passing. A trust is much more complex than a will and has unique benefits for beneficiaries and a decedent’s estate as a whole. There are different types of trusts in Pennsylvania to use to accomplish different estate planning goals. Before delving into the specific types of trusts available, it’s important to understand what a trust is, at its core.
What is a trust?
A trust is a fiduciary agreement that allows an individual (trustee) to hold assets on behalf of a beneficiary, or multiple beneficiaries. The designated trustee has an obligation to keep or use the property held in trust for the benefit of the listed beneficiary(ies). Establishing a trust in Pennsylvania is a complicated process that involves several steps. It is much easier to create a trust with the assistance of an experienced attorney who can walk you through the process and guide you through the decision of which type of trust is right for you and your loved ones.
Types of trusts commonly used in Pennsylvania estate planning
Trusts are a great tool to protect your assets and ensure your wealth is preserved for future generations. However, trusts are not a “one-size-fits-all” estate planning tool. There are four types of trusts in Pennsylvania commonly established to accomplish estate planning goals.
1. Revocable Living Trust:
A revocable living trust allows a grantor (the individual who set up the trust for their assets) to maintain control of their assets during their lifetime. This is the most flexible type of trust, in which a grantor can modify, change, or terminate the trust at any time. Assets held in a revocable living trust bypass probate, avoiding the delay of transfer from the trust to beneficiaries after the grantor’s passing. Revocable living trusts are also helpful tools when setting up a plan in case of incapacity and to maintain the privacy of assets.
2. Irrevocable Trust:
An irrevocable trust is one of the types of trusts that are similar to a revocable trust but lacks the aspect of flexibility. The grantor is required to relinquish all rights to ownership of assets that are placed into the trust and of the trust itself at the time of its creation, effectively removing the asset(s) from the individual’s estate. This type of trust cannot be modified without permission of the designated beneficiary/beneficiaries or the Court. For many, the benefits of an irrevocable trust outweigh the lack of flexibility compared to other types of trusts. Irrevocable trusts can minimize the amount of taxes owed on a decedent’s estate and shield assets from creditors.
3. Special Needs Trust:
A special needs trust is a special type of trust that is designed for individuals who have loved ones and beneficiaries with disabilities or special needs. This type of trust allows individuals with special needs to benefit from the assets they have inherited, while preserving their eligibility for need-based government benefits, like Medicaid and SSI.
4. Medicaid Asset Protection Trust (MAPT):
A Medicaid asset protection trust does just that – protects assets from being counted for Medicaid eligibility. By transferring assets to a Medicaid asset protection trust before the need for benefits arises, an individual can qualify for long-term care benefits while protecting assets from being depleted if long-term care is needed in the future. This trust is special, as it allows someone who would have otherwise been ineligible for Medicaid benefits to become eligible by removing assets from their ownership and transferring “ownership” to the trust.
A trust is a great tool for estate planning in Pennsylvania, allowing for greater control over asset distribution and ensuring wealth is preserved for beneficiaries. With advantages ranging from tax benefits to government program eligibility, there is a trust for every unique estate planning situation. An experienced estate planning attorney can guide you through the process of establishing a trust, ensuring it achieves your estate planning goals and fits the needs of your family.
The compassionate team at Antanavage Farbiarz is here to help. Reach out today to learn how our seasoned attorneys can assist you in creating the right trust for your unique situation. Our family is here for your family – give us a call at (610) 562-2000 or click here to schedule a consultation.
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