Facts on Living Trusts in Pennsylvania

Creating a living trust bypasses the need for probate when a person dies.

Living trusts in Pennsylvania are revocable trusts which are created specifically to avoid probate and supply property management for a long period of time. A living trust is created when the grantor (person who is giving the assets through the trust) sets up and signs a declaration of trust. This declaration of trust sets the terms and provisions of the trust.

Revocable Trust

The assets within the trust are not subject to income taxation.

Under Pennsylvania law, a revocable trust can be canceled or amended during the grantor's lifetime. This permits the grantor to appoint herself as the trustee and have control over all assets within the trust. The IRS permits the grantor to buy, sell, trade or give any assets within the trust without paying income taxes. These trust assets are considered personal property which the grantor may manage however he wishes.

Assets

Several different types of property may be transferred into the living trust.

After the living trust is established, the grantor will then fund the trust by transferring assets into it. If the grantor wishes to transfer real estate into the trust, the deed to the real property is finalized and recorded. The grantor may also transfer items such as bank and retirement accounts for his benefit and the benefit of the grantee. The grantee is the person who will receive the assets upon the grantor's demise. The grantor manages the assets while he is alive. When the grantor is deceased, the trustee passes the assets to the beneficiaries without going through probate.

Misconceptions

A "pour-over will" is a helpful tool to avoid probate with assets left outside the living trust.

Some people believe that if there is a living trust, it replaces the last will and testament. However, a "pour-over will" is attached to the living trust and is typically executed at the same time as the living trust. A "pour-over will" is used to transfer all the remaining assets into the living trust when the grantor dies. This particular type of will is beneficial because if any assets are not included within the living trust, the assets may be subject to probate.

Management Tool

The living trust is a useful tool to manage the assets within the trust before and after the grantor's demise.

A living trust provides for the assets' management both during the grantor's life and after her death. The living trust determines how the assets and earned income from the trust will be allocated after the grantor is deceased. If the grantor becomes incapacitated, the trustee listed in the living trust will take over as the director of the living trust. The trustee will then manage the assets within the living trust until the grantor's death, after which the assets are distributed to the beneficiaries.

Joint Living Trusts

A joint living trust may be subject to taxation under Pennsylvania law.

A joint living trust can be created in Pennsylvania by combining the assets of two spouses. The husband and wife manage one trust document. The joint living trust should be drafted with meticulous aforethought to avoid estate tax. If the estate within the living trust is over $625,000, it may be taxed. It is recommended that the couple hire an attorney to help draft the trust document to avoid unnecessary tax exposure.

References

• Nupp Legal: Commonwealth of Pennsylvania Living Trust
• Munley, Munley Cartwright, P.C.: Difference Between Wills & Living Trusts