A trust is a legal entity that is created when one person (the settlor) transfers assets to another person or group of people (the trustees) to be held for the benefit of a third person or group of people (the beneficiaries). The trustees are responsible for managing the trust and must act in the best interests of the beneficiaries.
In Pennsylvania, trusts can be used for a variety of purposes, such as estate planning, asset protection, and tax planning. However, there are a few important things to consider when creating a trust. We will discuss these below.
What are the Different Types of Trusts?
There are many different types of trusts. Some of the most common are:
- Testamentary Trusts: A testamentary trust is a trust that is created as part of a will. The trust is created when the will is probated, and it begins to operate after the death of the person who created the trust. The trust can be used to provide for the needs of the beneficiaries, or it can be used to hold assets for the benefit of the beneficiaries.
- Living Trusts: A living trust is a trust that is created while the person who creates it (the settlor) is still alive. You create the trust while you are alive, and you name someone else (the trustee) to manage the trust after you die. The trustee can use the trust property to provide for your heirs, or he can sell the property and distribute the proceeds to your heirs. A living trust can be a great way to avoid probate, which is an often lengthy process of distributing a person’s property after death.
- Irrevocable Trusts: An irrevocable trust is a type of trust that cannot be changed or canceled by the person who created it, also known as the settlor. This type of trust is often used for estate planning, as it can help to protect assets from being seized by creditors or in the event of a lawsuit. An irrevocable trust can also be used to avoid estate taxes, since the assets in the trust are not counted as part of the person’s estate when they die.
- Special Needs Trusts: A special needs trust is a legal entity that is created to hold assets for the benefit of a person who has a disability. The trust is designed to provide financial assistance to the person without jeopardizing their eligibility for government benefits. The trust can be used to pay for things like housing, transportation, and medical expenses.
Who Can Create a Trust in Pennsylvania?
In Pennsylvania, a trust can be created by any adult individual who has the capacity to plan. This means individuals who are 18 years of age or older. This also means that the creator of the trust must have the mental capacity to understand the terms and effects of creating the trust.
Apart from this, in order to create a valid trust in Pennsylvania, the grantor must make sure that all of the following requirements are met:
- The trust must have a designated purpose, such as providing for the care of a child, spouse, elderly relative, a charity, a pet, etc.
- The grantor must appoint a trustee to manage and distribute the assets in the trust. The trustee should be someone who is trustworthy and capable of managing the assets responsibly.
- The beneficiaries must be clearly identified, and their interests should be protected.
- The trust must meet all state laws, rules, and regulations.
- The trust must be executed in the proper form to be valid.
How Do You Fund a Trust in Pennsylvania?
After ensuring that the above has been completed, now, you will have to fund the trust. Depending on the type of trust, there are a few different ways to fund it, either with a transfer of assets directly to the trust, or with a cash transfer to the trust. Just as with choosing the trust type, the way you choose to fund it will depend on your individual circumstances and goals for the trust.
Apart from a one-time transfer to the trust, some other common methods of funding a trust include:
- Setting up a regular payment plan to contribute to the trust fund.
- Transferring assets to the trust over time.
- Combining any of the above methods.
What Cannot be Put in a Trust?
There are many things that people put into trusts, but there are also things that cannot be put into trusts. For example, children cannot be put in a trust, nor can a spouse be put in a trust.
There are a few other exceptions to this rule, including certain types of retirement accounts and some types of life insurance policies. Additionally, as assets need to be retitled into the trust’s name, any assets (e.g., your car) that you might want to have your name on will not be transferred to the trust.
What Rights Do Your Trust’s Beneficiaries Have?
If you have created a trust, or you are planning to do so, you likely did so in order to provide for your loved ones after you are gone. While the trust document will spell out who your beneficiaries are and how they will benefit from the trust, it may not be clear what rights those beneficiaries have. Here is a look at some of the most important rights that beneficiaries of trusts have in Pennsylvania.
First and foremost, beneficiaries have a right to information about the trust. This includes information about the assets held in the trust, how those assets are managed, and how much income and principal each beneficiary receives from the trust. Trustees must keep accurate records of all transactions involving the trust and must provide this information to beneficiaries upon request.
Second, beneficiaries have the right to receive distributions from the trust in accordance with the terms of the trust agreement. Trustees must distribute income and principal to beneficiaries in accordance with the terms of the trust document.
Contact a Trusts Attorney at NBMS Law
As you can see, trusts can be a great estate planning tool for Pennsylvania residents. They can help you protect your assets, provide for your loved ones, and save on taxes. If you are interested in creating a trust, please contact an attorney at NBMW Law today. We can help you create a trust that meets your needs and complies with the law.