Berman & Asbel, LLP

Inheritances and trusts in Pennsylvania

When people are completing their estate plans, they might wonder whether to establish a trust or to instead pass their assets through a will or other documents. Trusts are not always appropriate, and because of changing tax laws, wills and other estate tools may be better for many people.

With the passage of the American Taxpayer Relief Act, favorable federal estate tax rules were made permanent. In 2016, people are now able to exclude $5.45 million from their estates for tax purposes. For married couples, both can claim the exemption, allowing married couples to pass up to $10.9 million free of estate taxes.

People used to establish trusts in order to get around high estate taxes, which are currently set at 40 percent for estates that exceed the exemption amount. Most estates in Pennsylvania are not larger than the exemption, meaning establishing trusts may not be appropriate for them. Trust income is taxed at a 39.6 percent marginal tax rate for everything above a certain threshold. Capital gains taxes have risen as well. This means that trusts may be inappropriate for couples whose estates are worth less than $11 million. Trusts may still be useful for those whose estates are larger, who want to use them to manage assets for them, who want to control how their assets are passed to their children or who have children with special needs.

Spendthrift trusts are good for people whose intended beneficiaries are unable to handle money well. People may also want to establish charitable trusts to benefit their preferred causes. Those who are wondering how trusts can benefit their goals and situations may want to meet with an estate planning attorney to learn more about the subject.

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