Revocable Living Trust OR Irrevocable Trust In Pennsylvania What's The Difference?
Do you need one or both?
Revocable Living Trusts In Pennsylvania: What Are They? How Do They Work?
A Revocable living trust is created when a Grantor (the person who creates the trust) transfers assets into a trust during their lifetime and when the trust can be changed or revoked by the Grantor at anytime during his or her lifetime. A Revocable Trust is an extension of your will because most people will create a pour over will to transfer assets into the trust at their death. The Grantor reserves the right to revoke the trust at any time. A Revocable Trust can eliminate probate when a Grantor successfully transfers all of his or her assets into the trust prior to death.
It does not eliminate federal estate taxes or state inheritance taxes and it does not offer asset protection because the owner of the assets retains power over the trust assets. There are many kinds of Revocable Trusts designed for many different purposes. Revocable Trusts allow the Grantor to contribute assets for the benefit of others that will be managed by a trustee or to appoint a person, bank, or trust company to manage assets for the Grantor as the Grantor ages. The Grantor can be the trustee and/or a beneficiary of the trust.
In Pennsylvania, trusts are used less frequently by Pennsylvania estate planning attorneys because the state’s probate laws are simple and the probate process can be quite quick and uncomplicated compared to many states.
Irrevocable Trusts In Pennsylvania:
An Irrevocable Trust is created by a Grantor when he or she transfers assets into a trust, the terms of which cannot be changed by the Grantor. It cannot be changed and it says so in the document. If it fails to say that it is irrevocable, under most states' laws it's presumed that it can be changed or revoked and the trust won't work as an irrevocable trust.
Because an Irrevocable Trust cannot be changed or terminated by the Grantor, once it has been created, it will generally not be taxed at death of the Grantor and cannot easily be reached by the Grantor’s creditors. Unlike a Revocable Trust the Grantor does not own the assets. All of the property held in an Irrevocable Trust is out of your taxable estate (care must be taken in the case of life insurance to avoid includability).
The Irrevocable Trust is a tax efficient way to transfer accumulated wealth onto your beneficiaries. Like a Revocable Trust, an Irrevocable Trust will also avoid probate. As mentioned, the property in an Irrevocable Trust may be protected from creditors of Grantors and of beneficiaries. A special type of Irrevocable Trust can help a person avoid spending all of their money before entering a nursing home as required in the Medicare nursing home spend-down provisions. Appointing an Independent Trustee is an important part of an Irrevocable Trust. The law has strict regulations on trustees that include having to account for benefits the trustee may gain directly or indirectly from a trust. A trustee is subject to many rules:
- A trustee cannot use trust property for private advantages. The trustee will be held personally liable to account for profits made if this obligation is breached.
- A trustee must use their power in the best interest of the beneficiaries of the trust.
- A trustee must manage a trust with proper care. If the trustee does not they are held personally liable and will be required to compensate the beneficiaries.
It is important to know what a Revocable and Irrevocable Trust is so that you can implement the best Estate Planning that is available to you. Every situation is different and every situation may require different things. Find out today if a Revocable or Irrevocable Trust is right for you.
David M. Frees III