There are several different types of trusts that can be instituted to address specific needs. Make an appointment with Mentch Law to discuss if a trust is right for you.

Trusts are important estate planning tools that can be utilized for several purposes, including but not limited to providing for minors, providing for special needs handicapped individuals with either a physical disability or a mental disability, asset protection or preserving assets, inheritance tax strategies, achieving charitable purposes, or taking care of pets. While a trust is more often used to help younger generations, a trust can also be setup to help parents and grandparents in certain situations. Inheritance tax strategies may also include the use of a trust regarding life insurance incidents of ownership. Trusts are also used for strategies to protect assets from the high cost of long term care and to help obtain medical assistance to pay for home nursing care or nursing home care. Trusts have also been utilized to avoid probate court proceedings or reduce probate costs.

The Pennsylvania Uniform Trust Act (PUTA or PA UTA) was passed in 2006. Trusts in Pennsylvania are regulated by Pennsylvania Title 20 C.S. Chapter 77 Trusts.

The Pennsylvania Uniform Principal and Income Act (PUPIA or PA UPIA) was passed in 2002. Trust administration is regulated by Pennsylvania Title 20 C.S. Chapter 81 Principal and Income.

There are too many different types of trusts with too much complexity to describe them all in detail here. In general however, a trust is typically setup by a party called the trustor, grantor, or settlor. The trustor typically sets up that trust to use the trust property to benefit another party or parties called the beneficiary or beneficiaries. The trustor typically also names a party to manage the trust called a trustee. The trustor can grant or limit authority to the Trustee under the trust to invest trust property and distribute trust property to the beneficiaries. Many trusts also contain a spendthrift clause to prohibit a beneficiary from securing credit using future distributions, and thus typically should also prevent attachment by creditors of a beneficiary.

A revocable trust may be altered or revoked by the trustor. An irrevocable trust may NOT be altered or revoked by the Trustor alone. In certain circumstances, a non-charitable irrevocable trust MAY be revoked or be changed by the trustor with approval of the beneficiaries, or some of the beneficiaries and the court. This is enumerated under Pennsylvania 20 Pa. C.S. § 7740.1. Modification or termination of noncharitable irrevocable trust by consent – UTC 411.

A trust that is created upon the death of the trustor is called a testamentary trust. A trust that is created while the trustor is still alive is called an inter vivos trust. A pour-over provision can transfer property to a trust at the time of the trustor’s death. There are several Pennsylvania Inheritance Tax forms that should be discussed with a CPA when strategizing at trust.

A Few different types of trusts are described below1:

A Minor’s Trust might be used to transfer property to a minor child under the age of 18, or under the age of Majority. A Dynasty Trust might be used as a trust to benefit future generations. A Special Needs Trust, a Self-Settled Special Needs Trust, a Pooled-Account Special Needs Trust, or a Third-Party Special Needs Trust might be used to provide for a disabled individual, and in some instances may not affect Medicaid or Supplemental Security Income (SSI). A Revocable Living Trust might be used for management of property, and/or avoiding ancillary probate in multiple states.

A Charitable Trust might be established to benefit a charitable purpose. A Charitable Lead Trust might be used to split-interest between first a charity, and secondly the residual interest to a non-charitable interest. Conversely, A Charitable Remainder Trust might be used to split-interest between first a non-charitable interest, and secondly the residual interest to a charity. Alternatively, a licensed investment advisor might also recommend a charitable gift annuity for charitable donations.

Lifetime Gifting Trusts might be used by wealthy individuals and couples to reduce federal estate taxes for estates valued above the federal estate tax exemption. The 2020 federal estate tax exemption is $11.58 million for individuals and $23.16 million for married couples. Lifetime gifting trusts can be in the form of a Qualified Personal Residence Trust (QPRT), a Grantor-Retained Annuity Trust (GRAT), and Grantor-Retained Unitrust (GRUT), a Section 2503(c) Trust, a Crummey Trust, an Intentionally Defective Grantor Trust (IDGT), a Marital Deduction Trust, a Credit Shelter Trust, a Disclaimer Trust, a Qualified Terminable Interest Trust, and/or an Irrevocable Life Insurance Trust.

1. Edward L. Perkins, The Pennsylvania Trusts Handbook (THE PENNSYLVANIA BAR INSTITUTE 2020)

Attorney Kirk E. Mentch, Esquire