The thought of death is frightening for many. But what’s even more frightening is not knowing what will happen to your loved ones’ futures once you are gone. While many people choose to avoid estate planning, the sooner you prepare for the future, the less frightening it will be.
The best way to provide for your family’s future is by creating a trust. But how do you get started?
For decades, the Pennsylvania estate planning lawyers of Fellerman & Ciarimboli have been helping clients in Philadelphia, Scranton, and Wilkes-Barre with trust creation. We understand how difficult this situation can be. That’s why we will take the time to walk you through the process and make sure your family’s future is protected if something should happen to you.
Understanding the Difference: Trust vs. Will
Many Pennsylvanians believe that if they have either a will or a trust, then they do not need the other. However, that isn’t necessarily the case. It’s important to understand where these two estate planning documents differ to ensure you have what you need to best support your family.
In general, people create a will to avoid intestacy laws. By having a will, you can determine how real and personal property, and other assets will be divided to whom you chose. It also allows you to designate who will care for minor children should something happen to you.
A trust is an advanced estate planning tool. Whether the trust is used to manage property during your lifetime or to replace and supplement a will, it’s a useful legal tactic when wanting to avoid probate.
There is more than one type of trust, but to understand the types, we need to first know what a trust can do.
What Is a Trust?
In estate law, a trust is used to distribute the property or finances to a selected individual after a person dies. The purpose of a trust is to make sure the selected person is cared for after someone passes away. For example, take the case of chef Anthony Bourdain. He created a will in 2016 which made his wife at the time the executor. Bourdain then created a trust outside of the will for his daughter which had the bulk of his estate.
A trust has a set of legal guidelines that must be followed. These rules determine the specifics of how the property is distributed and when. There is usually a guardian appointed by the deceased to make sure these rules are carried out as specified. Violating these rules is considered a breach of fiduciary duty and the guardian can be held accountable in a court of law.
The Types of Trust
When creating a trust, it’s important to know there are various types of trusts, each with their own advantages and disadvantages:
With so many options for estate planning, it's important to speak with an experienced trust attorney to help you plan out a trust. Our lawyers can guide you through the process and advise which trust would fit your goals the best.
- Revocable Trusts – These types of trusts are created during the lifetime of the grantor through a transfer of property to the trustee. The creator of the living trusts keeps the power to either change or revoke the trust.
- Irrevocable Trusts – Once the grantor passes away, that trust becomes irrevocable, meaning it cannot be changed. The trustee needs to follow the rules that the grantor had established when distributing property or payments.
- Living Trusts – Like revocable trusts, this type of trust is created while the grantor is still alive. Unlike many trusts which don’t go into effect until the grantor dies, a living trust can be effective immediately after it’s been established.
- Testamentary Trusts – These are also known as trusts under a will. They are created within the will after the grantor has passed away. The trust is designed to accomplish specific goals such as gifting money to charities, ensuring that a special needs beneficiary is cared for, or providing income to a spouse over his or her lifetime.
- Charitable Trust – A charitable trust is created for the benefit of one or more nonprofit organizations. There are two types of charitable trusts: a charitable lead trust and a charitable remainder trust. A charitable lead trust can pay a set amount or percentage of the trust annually to one or more charities each year for a certain period and then leave whatever assets are left to another heir. A charitable remainder trust can provide a set amount or percentage to one or more heirs for a certain period, often their lifetimes, with anything remaining going to a charity.
- Special Needs Trust – These trusts are those created for individuals with physical, intellectual or mental disabilities and are developed with the needs, lifestyle, and future of that individual in mind. Special needs trusts are unique in that they can be created by a donor during their lifetime or created within a will. A special needs trust enables the donor of the trust to provide continuous care for the individual with special needs. When drafted correctly, the individual who benefits from the trust will still be eligible for federal programs such as Supplemental Security Income, Medicaid, and low-income housing.
- Medicaid Trust – A Medicaid trust is an irrevocable trust established for the purposes of sheltering assets in the event an individual needs skilled nursing care in the future. This trust generally permits the income from the trust to be distributed to the individual who created it, but expressly forbids any distribution of principal to them or their spouse for any reason. Such restrictions prevent the assets in this trust from being countable when applying for medical assistance and protect them from estate recovery. There are specific qualifications and provisions you need to meet for this type of trust, which an estate planning attorney will explain to you to ensure this is the right fit for you and your loved ones.
Why Should I Create a Trust?
Maybe you think that a trust is only for someone who may have wealth or a lot of assets to protect. But in reality, there are various reasons why you should create a trust.
The most important reason is the establishment of a trust can save money in the long run. With a legal document in place that explains how property is transferred, it can help prevent the probate process which can be extremely expensive. It also reduces and, in some cases, eliminates some of the estate taxes that will be charged upon your death.
A trust also puts control of the estate in your hands. The instructions that you create for how your assets are to be distributed must be followed. It gives you the power to change beneficiaries, revoke the trust, and sell the property, even if you become incapacitated.
A trust also gives you the power to make certain gifts to individuals or organizations. For example, if you want a specific piece of jewelry to go to your daughter, you can rest assured that your wishes will be carried out as long as it is referenced out in your trust.
How Our Estate Planning Attorneys Can Help
Now is the time to prepare for the future. The NEPA estate planning attorneys at Fellerman & Ciarimboli understand how difficult it can be to make these decisions. With compassion and respect, we will work with you to make the process as simple as possible. We work hand-in-hand with financial advisors and other financial experts to make sure your finances are taken care of.
Do not avoid the future. Now is the time to plan accordingly or else the courts will make the decisions for you. Contact our Philadelphia trust attorneys at Fellerman & Ciarimboli today to set up a free consultation.
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