Trusts in an Estate Plan
Common situations that benefit from the use of Trusts in estate plans
Sometimes, but not always, the ideal plan for a given client might include one or more Trusts, for which the client is the “Settlor.” Trusts can be revocable or irrevocable, and if revocable, can often be prepared as part of a client’s Will or as a separate document (which is necessary if the Trust is intended to be funded during the Settlor’s lifetime). Trusts are enhancement to a basic estate plan, typically to address special situations such as:
High-Net-Worth Families: Trusts such as Generation Skipping Trusts (GSTs), Irrevocable Life Insurance Trusts (ILITs), Spousal Lifetimes Access Trusts (SLATs), and Qualified Personal Residence Trusts (QPRTs), are some of the tools in the toolbox that we use to plan for and mitigate Estate, Gift, and/or Inheritance Taxes for High-Net-Worth families.
Blended Families: Trusts can provide care for a decedent’s surviving spouse, while ensuring the remainder goes to the decedent’s own desired beneficiaries after the surviving spouse’s death.
Families with Minor/Younger Children: Along with naming Guardians, Wills for those with minor children include Trusts for those children, so the funds that the children inherit can be managed for their benefit by a Trustee until they are old enough to manage them independently. Often clients with young (although not minor) children still use these kinds of trusts, so that their children have assistance in managing their inheritance if that becomes necessary.
Other Beneficiaries who would Benefit from Financial Oversight: If you have a beneficiary who struggles with financial independence, a trust allows you to manage how and when they receive assets. This ensures the assets are used wisely and provides protection from potential financial mismanagement.
Beneficiaries with Disabilities: A Supplemental Needs Trust can be established for a beneficiary with a qualifying disability. This type of trust ensures that the individual receives financial support without disqualifying them from government benefits.
Managing Real Estate after death: Trusts that are specially drafted to hold and manage real estate can provide structure for multiple branches or generations of a family to enjoy meaningful pieces of property. Alternatively, a simple Trust can be used to avoid the need for probate to transfer real estate after death in states (like Pennsylvania) that do not allow “beneficiary Deeds,” or when families have real estate in multiple states and want to avoid the need for “ancillary probate” (probate in states in addition to the decedent’s home state).
Maintaining Control During Incapacity: Certain trusts also allow for nuanced control during periods of the Settlor’s incapacity. The Settlor can appoint a Trustee to manage their assets in line with their wishes if they become unable to do so themselves - although typically Durable Powers of Attorney are sufficient for this purpose.
Charitable Giving: Charitable Remainder Trusts (CRUTs or CRATs) allow you to give assets to a Trust now, get paid a dollar amount or percentage from the Trust each year until your death (or the second of your and another’s death), and then leave the remainder to charity. The amount that is calculated to eventually pass to charity (using actuarial calculations) can serve as a present income tax deduction.
Qualifying for Medicaid: In certain situations, a Trust can be used to protect assets while “impoverishing” an individual (such as a beneficiary) in such a way as to qualify for Medicaid.
In this brief post, we have only provided a basic introduction to the most common situations that benefit from the use of Trusts in an estate plan. Every client’s situation is unique, and so it is likely that the best solution for your particular situation will require the thought and care of an experienced professional. If you are interested in discussing an engagement with us to prepare or review your estate plan, please call us at 215-849-4400 or write to us at lawyers@commonslaw.com.