A trust is a legal arrangement where someone creates a legal entity (the trustee) to hold and manage assets for the benefit of another person (the beneficiary). This arrangement allows people to transfer their assets, such as property or money, to a trustee who then manages or receives it according to the terms set out in the trust document. This is a way to pass down your assets to someone as close to the way you want rather than using a will. A will has a lot more limitations, and you have to pass away for someone to receive the assets. With trusts, you can pass assets to someone while you’re still alive, but that’s just one special use for one specific type of trust.
If you’re not sure what type of trust is available to you and thusly which one you want to use, the estate planning attorney at Pike Law can help.
Different Uses of Trusts
Trusts have various uses and can serve different purposes depending on the needs of the creator. Some common uses of trusts include:
- Asset protection: A trust can be used to protect assets from creditors or lawsuits. Once they are in the trust, the assets are no longer considered part of the trustee’s assets.
- Tax planning: Trusts can also be used for tax planning purposes. For instance, they can minimize estate taxes or reduce income taxes by distributing income to beneficiaries in lower tax brackets.
- Charitable giving: A charitable trust allows you to donate assets to a charity while still retaining some control over how the assets are managed and distributed. For instance, you can donate assets to specific locations of a charity rather than leave the charity itself to divide your assets.
- Special needs planning: A special needs trust can be created to provide for the long-term care of a disabled or incapacitated loved one without affecting their eligibility for government benefits. There are programs from Supplemental Security Income (SSI) and Services for Persons with Disabilities that you do not want your loved one to lose access to because of the assets you left them.
Types of Trusts in Pennsylvania
Several types of trusts are available in Pennsylvania, each serving a different purpose and offering unique benefits. These include:
- Revocable Living Trust: This trust allows you to maintain control over your assets while you’re alive and designate how your assets will be distributed after your death. It can also help avoid probate and keep the details of your estate private.
- Irrevocable Trust: Once created, this type of trust cannot be changed or terminated, even by you, the creator. It is commonly used for tax planning and asset protection purposes.
- Testamentary Trust: This trust is created through your will and only takes effect after your death. Many people use this type of will to provide care and support to minor children and/or dependents who will survive them.
- Charitable Remainder Trust: This type of trust allows you to donate assets to charity while still receiving income from those assets during their lifetime. It can also provide tax benefits.
- Special Needs Trust: As mentioned earlier, this trust is designed to provide for the care and support of a disabled or incapacitated beneficiary without affecting their eligibility for government benefits.
- Spendthrift Trust: This trust places restrictions on how beneficiaries can use the assets. This can protect them from creditors and/or reckless spending habits. For instance, it could be a trust meant to cover their schooling or medical needs, but nothing else.
- Testamentary Charitable Remainder Trust: Similar to a charitable remainder trust, this type of trust is created through your will and takes effect after death. The main difference is that it’s for a charity rather than a person.
- Generation-Skipping Trust: This trust allows assets to be passed down to beneficiaries who are at least two generations younger than you, such as grandchildren, avoiding estate taxes and children.
- Totten Trust: This trust allows you to transfer assets to a designated beneficiary upon your death without going through probate.
- Charitable Lead Trust: The opposite of a charitable remainder trust, this type of trust provides income to a charity during the creator’s lifetime and then transfers the remaining assets to beneficiaries after their death.
Contact the Estate Planning Attorneys at Pike Law
Trusts can be valuable tools for managing and distributing assets in Pennsylvania. With various types of trusts available, consulting with an experienced attorney is important to choosing and creating a trust or multiple trusts that fit your needs and goals. This means it’s essential to seek the guidance of a qualified estate planning attorney when creating a trust in Pennsylvania. The estate planning attorney at Pike Law is experienced in creating different types of trusts. With this experience, Attorney John B. Pike can help you navigate the complexities of creating and managing a trust to ensure your assets are protected and distributed according to your wishes. Contact us today to schedule a consultation.
