Berman & Asbel, LLP

Choosing whether to create a trust

Pennsylvania residents may be of the belief that putting their assets into a trust will prevent the inheritors of the trust funds from being hit with an estate tax when the funds are transferred. However, a recent change in tax policy has made it so that up to $10.6 million of a married couple's estate will be exempt from estate taxes, making it less necessary to create a trust for the purposes of avoiding hefty estate taxes.

Despite the recent change in the law, there are still many reasons why individuals may want to put their assets into a trust. A trust can help individuals transfer their assets to heirs smoothly and privately, possibly avoiding the need to have the assets dealt with in probate court after the owner's death. People may also want to establish a trust in case they eventually become incapacitated or otherwise unable to handle their own financial affairs. In these instances, it may behoove individuals to set up revocable trusts, or trusts that can easily be modified while the person creating the trust is still alive. Once the person dies, a well-made revocable trust should become an irrevocable trust.

When a person establishes an irrevocable trust, everyone involved in the trust, including the beneficiaries, must give approval if the creator of the trust wants to make any modifications, such as changing the terms of the trust or firing the trustee. Irrevocable trusts can be costly to administer, but they may also be good for establishing things like special needs trusts, which guarantee the continued financial support of a disabled person.

An estate planning attorney may help a person decide whether creating a trust is right for them. A trust may actually complicate the distribution of certain assets, so an attorney may be able to advise a client as to which assets should be put into a trust and which will pass into an heir's ownership seamlessly.

Source: US News & World Report, "How to Choose Between a Revocable and Irrevocable Trust", Joanne Cleaver, June 19, 2014

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