A Trust and Estate Attorney Can Guard Your Assets
A trust and estate attorney can provide even greater insight. But fundamentally, a trust establishes a fiduciary relationship where one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets. The trustee holds those assets for the benefit of a third party, the beneficiary.
Trusts provide legal protection for the trustor’s assets. In addition, they accomplish some other things:
- Ensure those assets get distributed per the trustor's wishes
- Conserve assets for beneficiaries
- Designate a third party for investment management
- Avoid guardianship proceedings of property transfers to minors and incapacitated persons
- Save time and paperwork
- Often reduce or avoid inheritance or estate taxes
Numerous trusts exist. But each trust includes provisions tailored to the grantor’s needs. Moreover, it provides instructions to the trustee regarding investment, management, and distribution of the assets within the trust. These decisions can be made easier with local trust and estate attorneys.
Setting up a Living Trust Through a Trust and Estate Attorney
Setting up a living trust can be relatively straightforward. For example, like a will, you can use a digital service to make a trust online. You can even open one yourself by drafting the proper legal document. The process, however, bears many of the issues associated with will. Moreover, complex trusts require the services of a trust and estate attorney to set up.
A living trust allows you to bypass probate entirely, presenting a significant advantage. Because assets don't go through probate, you can distribute them at any time, even immediately upon your death. In addition, if you have assets in more than one state, your trust allows you to bypass probate in those other states.
Regardless of the route, setting up a living trust with an estate planning attorney in Pennsylvania involves these steps:
- Choose whether to make an individual or shared trust.
- Decide the property to include
- Choose a successor trustee
- Determine the trust's beneficiaries
- Draft the trust document (preferably using a trust and estate attorney)
- Sign the document in front of a notary public
- Change the title of any trust property that has a title document to reflect that you own the property as trustee of the trust
A Trust and Estate Attorney Can Help Determine Which Type Is Best
There are two types of trusts:
- Inter Vivos trusts created during the lifetime of the grantor
- Testamentary trusts created under the will
Inter vivos trusts can be revocable or irrevocable. Testamentary trusts come into existence and become irrevocable at the time of the decedent's death.
In addition, there are numerous specialized trusts, including:
- Credit-shelter trust
- Qualified personal residence trust (QPRT)
- QTIP or qualified terminable interest property trust
- Irrevocable life insurance trust (ILIT)
- Charitable remainder/lead trust (CRAT, CRUT, CLAT, CLUT)
- Dynasty trust (DAPT)
- Special needs/supplemental needs trust (SNT)
- Pet trust
A trust and estate attorney can work with you to determine which works best for your specific needs. Let's take a closer look at each trust option.
Credit-Shelter Trusts for Married Couples
Married couples employ this trust. Typically, it carries up to the federal estate tax exemption amount which is $12.06 million for 2022. Then the remainder of the estate passes to the spouse tax-free. Placing assets in a credit-shelter trust shields them from appreciation from federal estate tax.
QPRT Trust Type for Homes
A QPRT trust removes the value of the grantor’s residence or vacation home from his estate. As a result, the grantor can continue to live in the dwelling and maintain complete control during the period of time specified in the trust. The “period of time” is critical, as the grantor must outlive the term of the trust. Otherwise, the grantor's estate includes the total value of the home. Planned correctly with the help of a trust and estate attorney, the grantor can gift the dwelling to his heirs, outlive the trust term, and continue to live in the residence if desired. So the grantor need only pay fair market value rent to the beneficiaries, thus removing more assets from the grantor’s estate.
QTIP Applies to Children from Different Marriages
Useful for families with children from different marriages, a QTIP trust typically combines with a credit-shelter trust. The surviving spouse receives income from the QTIP, and the remainder passes to the grantor’s heirs at the surviving spouse's death. QTIP assets get treated as part of the surviving spouse’s estate. In addition, the assets pass estate tax-free to the grantor’s heirs. This trust ensures the grantor’s wealth passes to his children.
Talk to a Trust and Estate Attorney About an ILIT if You Own a Business
An ILIT trust removes life insurance from the grantor’s taxable estate. At the same time, it can help pay estate costs and provide heirs with liquid assets. Moreover, this trust is beneficial if the grantor owns a business. The heirs use the life insurance proceeds for the business's operating costs after the grantor’s death until the company is sold or distributed.
Charitable Remainder Trust Type Eliminate Income Tax
An irrevocable trust pays income to non-charity beneficiaries for life (or fixed-term). The remainder interest goes to charities. The trust pays no income tax. Plus, the grantor receives estate, gift, and income tax deductions.
Charitable Lead Trust Trust
Like the charitable remainder trust, the charity receives payments for a set term. The remainder interest passes either to the grantor or his heirs. Income tax depends on the structure of the trust. A trust and estate attorney can help you create this trust.
Dynasty Trust/Domestic Asset Trust Protection
This type of trust keeps assets in trust for an extended time, even potentially in perpetuity. The basic structure of a domestic asset protection trust (DAPT) allows the grantor to receive income and discretionary principal distributions. Plus, it provides asset protection from creditors, spouses, and lawsuits while giving the grantor control over the investment management through the directed trust structure.
South Dakota has one of the most progressive DAPT statutes in the US. Under the fraudulent conveyance statute, there is a short look-back period (two years). In addition, it includes a total privacy seal that forbids the release of trust information to the public. As a result, the fear of placing property in an irrevocable trust gets removed with flexible modification/reformation provisions.
In a dynasty trust (a trust that lives on forever), the trust assets avoid federal taxation. South Dakota, for example, does not have an income tax. Therefore, undistributed trust income grows free of state income tax. However, Pennsylvania cannot tax the grantor or beneficiaries on any undistributed trust income retained in the South Dakota trust. A trust and estate attorney can provide greater insight for you.
It benefits individuals and businesses that hold assets with significant appreciation (i.e. low-cost basis closely-held stock) by avoiding state capital gains. It also covers individuals with a net worth of over $5.49 million. Plus, it works for individuals who need creditor protection (professionals, athletes, businesses, and families).
Talk to a Trust and Estate Attorney about SNT or Special Needs Trust
A special needs/supplemental needs trust can be stand-alone or testamentary. This trust aims to provide for a beneficiary’s needs not covered by government benefits (i.e., Medicaid/Medical Assistance). Our Montgomery County and Bucks County trust and estate attorneys can work with you to create a disability trust and special needs trust. It includes living trusts and irrevocable trusts and works on behalf of parents of children with disabilities, elderly couples who recognize they may need to finance nursing home care, and those with chronic illnesses. When appropriate, we assist families in developing family agreements or contracts – a method that can both save property and other assets from extinction.
This trust is typically created by a parent/guardian or court and funded with the disabled beneficiary’s assets. A first-party trust is used solely for the beneficiary. Moreover, the beneficiary must be under age 65—the trust assets supplement (not take the place of) public benefits. At the beneficiary’s death, the remainder gets distributed to the state to repay the public benefits given to the beneficiary.
You must create a third-party trust with funds from someone other than the disabled beneficiary. Typically, parents of disabled adult children generate this kind of trust. In addition, it requires no payback provision to the state.
A Trust and Estate Attorney Can Help You Navigate the Complexities
As you can see, trusts can be a complex area to navigate. Sure, you can attempt to create your trust. But the trust and estate attorneys in our local Doylestown and Norristown, PA law offices can make sure you do it correctly.
Our estate planning attorneys can also work with you on your estate plan. Talk with one about guardianships, living wills, or power of attorney. U.S News recognized as a Best Law Firm. That same publication also cited 14 High Swartz attorneys at law as Best Lawyers. Get in touch today!