Estate planning allows you to take steps to ensure your assets are protected after your death or incapacitation. After you’ve accounted for any remaining taxes or bills, you can distribute property and assets to friends, loved ones or charitable organizations. One of the most common estate plans is living trusts. Living trusts allow you to transfer control of your assets to a trustee, who then transfers ownership of those assets to any beneficiaries you’ve selected. Let’s break down how living trusts work and whether you need one in Pennsylvania.
A financial advisor can help you put an estate plan together for your family’s needs and goals.
How to Create a Living Trust in Pennsylvania
This is how you’ll form a living trust in the Keystone State:
- Select the trust that best fits your financial situation: There are individual trusts and joint trusts. It’s best to use an individual trust if you’re single. If you’re married, you should probably use a joint trust. Married couples can also use two individual trusts, though.
- Take stock of your property: Determine which property and assets you want to include in the trust. You can store things like bank accounts, real estate, stocks and bonds, retirement accounts and documents of ownership in your trust.
- Select a trustee to manage your living trust: You can act as the trustee, or you can appoint someone else to manage the trust. If you’d rather act as the trustee, you’ll need to choose a successor trustee to manage your assets after your incapacitation or death.
- Create the trust document: You’ll have a few options for doing this. If you’d rather create the document on your own, you can use an online program. Alternatively, you could hire a financial advisor or lawyer to help you with the process.
- Get your trust document notarized: Sign the trust while a notary public is present.
- Fund the trust by transferring property into it: This ensures your trustee can successfully distribute your property to your beneficiaries. A lawyer can assist you in this step.
What Is a Living Trust?
A living trust is a legal estate plan that lets an individual, or grantor, transfer property ownership to beneficiaries. The trust goes into effect as soon as the grantor creates it, and the grantor may be able to modify or revoke any of the trust’s provisions. But this depends on the type of living trust you choose.
The two types of living trusts are irrevocable living trusts and revocable living trusts. Irrevocable living trusts cannot be altered or terminated without the permission of all of the trust’s beneficiaries. Grantors can alter or terminate any provisions they make in revocable living trusts.
How Much Does It Cost to Create a Living Trust in Pennsylvania?
You’ll have a few options for creating a living trust in Pennsylvania, but the approach you choose determines how much you’ll spend. If you’d like to form the trust on your own, you can do so with an online guide or program. You’ll likely spend a few hundred dollars at most. Additionally, this method is less expensive than hiring an attorney, but DIY estate planning also presents some risks.
If you’d rather hire a lawyer, you’ll likely spend at least $1,000. This could be a less risky approach than DIY planning, but it’ll cost you more. You’ll also have to account for your attorney’s fees, and you’ll want to find a lawyer that specializes in living trusts, not just estate planning.
Why Get a Living Trust in Pennsylvania?
There are many advantages to forming a living trust in Pennsylvania. A common reason people create living trusts is to avoid the probate process. This is a judicial process where court officials examine a decedent’s estate documents and determine whether they’re authentic. The process can take months and incur numerous expenses since Pennsylvania doesn’t have a Uniform Probate Code. This code simplifies the probate process, and certain states even offer a simplified probate process for individuals with certain estate sizes. Because this state doesn’t have the code, you could save money by forming a living trust.
Another advantage of forming a living trust is that you can determine who manages and transfers ownership of your assets to your beneficiaries. This can help you avoid conservatorship, which is the process where a judge appoints someone to manage your finances if you become incapacitated.
Who Should Get a Living Trust in Pennsylvania?
Living trusts are great for those with large or small estates. Because Pennsylvania doesn’t use the Uniform Probate Code, you could save a lot of time and money by using this estate plan. Residents with larger estates especially benefit from living trusts, as they help them avoid the time-consuming nature of the probate process. Pennsylvania does have a simplified probate process for estates with less than $50,000 in them, so those estates might not need a living trust.
You’ll still want to think about whether you actually need a living trust. These estate plans give you greater control over your assets, but you might also want to consider other estate plans like wills. We compare the two below.
Living Trusts vs. Wills
You can still benefit from using a will even if you form a living trust. With a will, you can account for the property you didn’t transfer into your trust. That way, you can ensure that all your assets are distributed to your beneficiaries and loved ones. A will also offers other capabilities that trusts cannot. These include:
- Naming an executor
- Leaving instructions for taxes and debt
- Establishing guardianship for minors
- Choosing managers for children’s property
This chart outlines some similarities and differences between a living trust and a will:
Living Trusts vs. Wills
|Names a property beneficiary||Yes||Yes|
|Allows revisions to be made||Depends on type||Yes|
|Avoids probate court||Yes||No|
|Requires a notary||Yes||No|
|Names guardians for children||No||Yes|
|Names an executor||No||Yes|
Living Trusts and Taxes in Pennsylvania
Living trusts usually don’t impact your taxes, but it’s useful to know about the Pennsylvania inheritance laws and estate laws. Pennsylvania doesn’t have an estate tax, but it does apply an inheritance tax. It taxes 4.5% on transfers to direct descendants; 12% on transfers to siblings and 15% to other heirs.
If your estate is worth more than $12.06 million as an individual or $24.12 million as a married couple filing jointly, you’ll be subject to a federal estate tax regardless of a living trust.
If you choose to create a living trust in Pennsylvania, you won’t have to deal with the probate process, but you’ll still have to reserve money and time to successfully draft and sign the legal document. Additionally, wills and trusts offer different capabilities but the two documents can in fact complement each other. With a will, you’ll be able to protect assets you didn’t include in your trust. When forming your plan, you can seek expert advice, or you can form the documents through online programs.
If you’re not sure the DIY approach is right for you, you may want to hire a lawyer to help you form your living trust.
Estate Planning Tips
- Do you need help planning out your estate? SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- You don’t have to be old or rich to create an estate plan. In fact, it’s better that you establish one sooner rather than later. You’ll want to ensure your property and assets are successfully transferred to any friends or loved ones you’ve chosen. If you don’t form a plan, you can risk having a conservatorship placed on your assets.
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