What is a Trust?
A trust is an agreement memorialized in writing that allows a third party to secure assets on behalf of a beneficiary or beneficiaries.
Establishing a trust can have many benefits, like:
- Establishing conditions on how and when assets are distributed after death
- Reducing estate taxes
- Helps to better protect assets from creditors
- Helps to avoid probate
The Trust will usually designate the following individuals:
- Surviving Spouse
A Grantor is the person who creates the Trust.
The Decedent refers to the person who died and is usually the same individual as the Grantor.
The Trustee is either an individual or corporation that is named as having the ability to take title to any property on behalf of a beneficiary. The trustee is usually responsible for managing and maintaining any property held within the Trust. Further, the Trustee is usually charged with overseeing any investments that are held within the Trust. It is the Trustee who is also responsible for record keeping of every transaction that takes place within the bank accounts held within the Trust.
The Beneficiary is the person that benefits from the establishment of the Trust. It is not uncommon for there to be more than one beneficiary named in a Trust and the named Beneficiary(s) can be anyone from siblings to employees and anyone in between. All named beneficiaries have a right to call for a special accounting of the Trust should they feel that the Trustee has not performed up to proper standards.
What is Included in a Trust?
A Trust can include the following property:
- Real property
- Stocks and Bonds
- Patents and Copyrights
- Works of art
- Valuable collections
Who Needs a Trust?
It is highly recommended that you have a Trust in place if:
- You want to maintain control of assets in the event you become unable to do so due to a decline in health
- You want to save money on estate taxes
- You want to avoid probate
- You want to protect assets from the reach of creditors and lawsuits
How is a Trust Created?
To create a valid Trust, the Grantor must intend to create the Trust and must prove that intent by spoken or written words or conduct.
The Grantor must also have proof of ownership of the property that they wish to place within the Trust and must also obtain the right to transfer the property into the Trust.
Once ownership is established, the Grantor must then name a Trustee who will oversee the property held within the Trust in addition to carrying out clearly defined administrative duties.
For the Trust to be valid, at least one Beneficiary must be named. The beneficiary(s) must be considered to be definite and certain in a way that it is clear where the property in the trust should go. Next, the type of trust must be established.
There are many different types of Trusts to choose from. The main difference is whether the trust is deemed to be revocable or irrevocable.
A revocable trust allows for maximum flexibility in that the property held within the Trust may be revoked at any time. This means that the terms that helped to establish the Trust may be changed and the assets that were placed into the Trust may be returned to the Grantor. A revocable trust is not required to be filed in probate court but the Grantor is subject to estate taxes.
An irrevocable trust is considered to be more permanent than a revocable trust in that any assets that previously belonged to the Grantor are permanently removed and placed within the trust. As a result, when the Grantor passes away, the property held within the trust is not considered to be part of their estate and are therefore free of possible estate taxation. Once an irrevocable trust is established, the Grantor loses control over the assets and the terms cannot be changed nor can the trust be dissolved.
So which type of trust is better? An irrevocable trust is usually preferred if the Grantor has a goal of reducing estate taxes as well as taxes against property held within the trust that continues to generate income. Further, a benefit of an irrevocable trust is that it helps to protect assets from creditors and lawsuits since the assets technically no longer belong to the Grantor once the property is placed into the trust.
A revocable trust is preferred by a Grantor who wishes to continue to have access to property that is placed within the trust up until the moment that they can no longer manage the assets. Once that threshold is met, the trustee of the trust steps in and manages the property according to the established plan.
Once the aforementioned is established within a Declaration of Trust document, the document should be signed by the Grantor in front of a notary.
Pennsylvania requires the Trustee of an irrevocable trust to send a notice to any beneficiary or potential beneficiary over the age of 25 since courts in Pennsylvania do not enforce a trust except when a Trustee or beneficiary makes a request.
When giving notice, the Beneficiary must be informed of the existence of the trust, the identity of the Grantor and the contact information for the Trustee.
How does a Trust work in Pennsylvania?
When a Trust is established in Pennsylvania, the goal is usually to place as many assets into the Trust as possible. This allows the assets to both be used for the Grantor's benefit during their life and to help the assets pass to named beneficiaries upon death. The creation of a trust also allows most of the assets to skip Pennsylvania's probate process.
Probate is the procedure that approves the existence of a will and helps to implement the listed instructions. However, the probate process can be cumbersome and can take months to complete. Once a Trust is established, it serves to supplement a Will and allows assets to bypass probate entirely and be distributed to named beneficiaries immediately upon the death of the Grantor.
Contact a Pennsylvania Attorney Today
If you or someone you know needs assistance with creating a trust, please contact the attorney Joseph D. Lento today.