Do I Need a Living Trust?

What are living trusts?

A living trust is a valid will substitute in the Commonwealth of Pennsylvania. During your lifetime, you have the ability to place your assets in a trust, designate a trustee (usually yourself while you’re living), a successor trustee (someone to take the job after you pass away), and beneficiaries. A living trust can be superior to a will, depending on the needs, goals and size/complexity of the estate of a particular client. However, living trusts are not for everyone, particularly in Pennsylvania.

Why do people create living trusts?

  1. Avoid Probate: Many people create living trusts to avoid probate, the process of proving your will. However, Pennsylvania’s probate process is much simpler compared to other states. Pennsylvania probate is not a court-supervised process, and only takes a relatively short amount of time to become appointed executor. Yes, there are probate fees for the County (probably in the range of $300-$1,000, depending on the size of the estate) but they are relatively modest. Therefore, avoiding probate (assuming you only own property in Pennsylvania) is not a good reason, by itself, to create a living trust.
     
  2. Asset Protection: You can’t protect yourself from creditors, spouses, etc. by creating a living trust. But you can potentially protect your children, heirs and other beneficiaries from themselves and from others. A living trust can never guarantee asset protection, but can help fend off predators and creditors, depending on the situation. In addition, the living trust must be set up in a particular way, with limitations on your beneficiaries, in order to effectively protect the assets.
     
  3. Seamless Transition: A living trust, if funded during your lifetime, can provide a smoother transition from one generation to the next. With a living trust, you have the potential to carefully lay out a distribution scheme in which the assets can flow to beneficiaries quicker.
     
  4. Privacy/Avoid Potential Estate Challenges: A living trust set up properly and funded with all of your probate assets can avoid probate completely, and therefore, is subject to privacy from the public. A potential beneficiary or anyone for that matter can challenge the validity of a trust, but it is much more difficult to do so since they don’t have easy access to the document.
     
  5. Control From The Grave: A living trust allows a grantor to control an inheritance long after they pass away. For instance, you can spread out an inheritance over 20 years, or only for certain needs, such as education or health. However, we can do the same thing in a will with a testamentary trust.
     
  6. Reduce/Avoid Taxes: Actually, this is a myth. A living trust does not do a better job than a will or any other testamentary device in avoiding death taxes, estate taxes or inheritance taxes. You can take advantage of the marital deduction and unified credit through a will with a testamentary trust and it will have the same effect. Don’t get sold on creating a living trust solely for tax benefits.

Do you recommend a living trust?

Living trusts are expensive to create, and we do not recommend creating one unless you have legitimate concerns about:

  • Privacy
  • Estate challenges
  • Asset protection
  • Assets in more than one state

Those concerns, coupled with the desire to avoid probate are good reasons to create a living trust.

If you want to know more about what tools make sense for your estate, whether it is large or small, contact our office today at (215)706-0200 or info@jawatlaw.com. We offer complementary initial consultations to determine if we’re a good fit.