Estate plans allow people to prepare for what happens to their assets when they die. One of the ways an estate plan can be set up is by creating trusts. A trustor does this so a beneficiary can receive their assets. A trust is an arrangement that gives a third individual, the trustee, the right to manage these assets on behalf of the beneficiary. It is important to know there are several different types of trusts a person can create. Each one serves its own purpose depending on the trustor’s intent. An experienced attorney can guide them during this time to ensure they create the right trust for their estate plan.
Revocable Trust
A common trust that is created in the state of Pennsylvania is a revocable trust. This trust can be modified, changed, or discontinued at any time during the trustor’s life without the permission of the beneficiary as long as the trustor is of sound mind.
Irrevocable Trust
With an irrevocable trust, a trustor is required to relinquish their rights to the assets as soon as it is created. This means they are unable to make any changes or terminate the trust at any point.
Bypass or Credit Shelter Trust
This is created for a married individual to take advantage of the unified credit in the Federal Estate Tax. Either referred to as a Bypass Trust or a Credit Shelter Trust, the assets in this trust are not subject to Marital Deduction but usually pass tax-free to children or other beneficiaries.
Life Insurance Trust
With this trust, the trustor can remove their life insurance from the estate. The beneficiary may then be free from paying taxes on the trustor’s life insurance policy.
Charitable Trusts
There are two different types of charitable trusts: a charitable leads trust and a charitable remainder trust. A charitable leads trust lets a trustor to choose which charities receive interest from their gift for a period of time. Whatever is then left of the trust can be given to their family or other beneficiaries. A charitable remainder trust allows charities to receive assets when the trust term ends. Until then, the donor receives the interest.
Marital Trust
This exists for a surviving spouse. It usually contains provisions that permit the assets within the trust to be passed to this spouse or to be used for their benefit with the Federal Estate Tax or Federal Gift Tax deferred until their death.
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Friedman Schuman is an experienced and dedicated legal resource for clients throughout Pennsylvania. We proudly serve clients facing a wide range of legal matters. If you require the services of an effective attorney, please contact Friedman Schuman today to schedule a consultation.
