Trusts

Pennsylvania Trust Attorneys

Trusts are powerful tools when used in a comprehensive estate or elder law strategy for individuals, married couples, families, and/or businesses. While it is difficult to simplify the myriad of benefits of using trusts, the biggest advantages are related to asset protection and tax benefits, and go beyond what a simple will or asset transfer can achieve. There are also specific advantages for certain types of trusts, including grantor trusts, income-only trusts, special needs trusts, and others.

Trusts have their roots in the oldest form of banking, where an individual would hold assets for another person. The person holding the assets is called a Trustee and is the legal owner of those assets, and must manage those assets for the benefit of the “true” owner, called a beneficiary. Tax laws vary by state, so it is important to know the specifics of your jurisdiction. Our team has experience with trust planning in several states throughout the U.S.

What is a Trust?

A trust is an entity that separates legal ownership from equitable ownership. Legal ownership includes the name in which the entrusted assets are titled and the responsibility for managing those assets. The trustee is the legal owner and, as such, the trustee is responsible for administering those assets in accordance with the terms of the trust agreement. Equitable Ownership basically means the right to benefit from the assets placed in the trust. Those rights of equitable or beneficial ownership are given to the trust beneficiaries. 

In certain circumstances, the Trustee can also be a beneficiary of the trust they manage if there are other beneficiaries to the trust. 

What is the Purpose of a Trust?

Trusts provide control, protection, and intention when used appropriately. They create a structured and legally enforceable plan that can help achieve estate and legacy goals, ensuring that assets are managed and distributed correctly, both during life and after death. Benefits include:

• Asset Protection: Trusts can shield assets from creditors, lawsuits, divorce, and even certain long-term care costs, depending on the type of trust and how it's structured. Often, businesses use trusts for their real estate assets.
• Tax Efficiency: Strategic use of trusts can reduce estate, income, capital gains, and inheritance taxes, preserving more wealth for beneficiaries.
• Providing for Loved Ones: Trusts allow for customized support of beneficiaries, including minor children, individuals with disabilities, or those who may need financial oversight.
• Planning for Incapacity: A trust can ensure seamless management of assets if the grantor becomes incapacitated, avoiding court intervention.
• Charitable Giving: Certain trusts are designed to support philanthropic goals while offering tax benefits to the donor.

See more information about the benefits of trust planning here: Why Use Trust Planning?

What Are the Different Types of Trusts?

There are several different types of trusts, each designed to serve a specific legal, financial, or personal need. Choosing the right type of trust depends on an individual’s circumstances, the nature of the assets involved, and the intended outcomes. These are some of the most commonly used trusts for estate and elder law planning:

Revocable Living Trust

A revocable trust is created during the grantor’s lifetime and allows the grantor to retain control over the assets and make changes or revoke the trust during their lifetime. It is often used to avoid probate and ensure smooth asset management in case of incapacity. However, in a state such as Pennsylvania, where probate is a relatively easy process, this is more of a perceived benefit versus a true advantage. In most cases, revocable trusts cost more to establish than a Will. More about the misconceptions of these trusts can be found here.

Irrevocable Trust

Once established, an irrevocable trust cannot be modified or revoked without the consent of the beneficiaries. These trusts offer stronger asset protection and potential tax benefits, as the assets are no longer considered part of the grantor’s estate. Irrevocable trusts can be Grantor Trusts or Non-Grantor Trusts. Note that asset transfers into an irrevocable trust are considered gifts and subject to gift tax.

Grantor Trust

In a grantor trust, the person who creates the trust retains certain powers or benefits (within Sections 671-678 of the Internal Revenue Code), causing the trust’s income to be taxed to the grantor. These trusts are often used for income tax planning and asset management. 

More on Grantor Trusts can be found here: Grantor Trusts Explained

Non-Grantor Trust

Non‑grantor trusts are irrevocable trusts whereby grantors do not retain any powers (within Sections 671-678 of the Internal Revenue Code), which makes them grantor trusts. As such, non‑grantor trusts bear the burden of income taxes (both federal and state), unless there are distribution mechanisms in place which allow a shift in the income tax burden to trust beneficiaries. 

Income-Only Trust

Often used in Elder Law and Medicaid planning, income-only trusts allow the grantor to receive income generated by the trust assets while protecting the principal from being counted for Medicaid (or other benefit) eligibility purposes.

Special Needs Trust

Special Needs Trusts are designed to provide for a beneficiary who has disabilities without jeopardizing their eligibility for government benefits. These trusts must be carefully structured to comply with legal requirements. More information can be found here: Special Needs Trusts.

Testamentary Trust

Created through a Will and activated upon the death of the grantor, testamentary trusts are useful for managing inheritances, especially for minor children or beneficiaries who need financial oversight. Testamentary trusts are subject to probate and the related court oversight.

Charitable Trust

Charitable trusts are used to support nonprofit organizations and charitable causes while offering tax advantages to the donor. They can be structured to provide income to the donor or beneficiaries before the remainder goes to charity.

How Our Pennsylvania Trust Attorneys Can Help You

While trust planning has many advantages, it can be complicated and overwhelming. Our estate planning attorneys and paralegals have significant experience in all types of trusts. We have the knowledge to use your specific circumstances and priorities to strategize the best plan to achieve your estate and legacy goals.

Ready to Set Up a Trust?

The best way to determine who to implement trusts into your estate plan is to start with a conversation. Our Estate Planning and Elder Law teams in Erie and Pittsburgh, Pennsylvania, are available to help you navigate the options and planning process. We can help you structure a plan that best suits your goals and priorities - so you can gain peace of mind.

Contact us today to schedule a free consultation. 

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