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Creating a Trust allows you to control funds that you might leave to your children, or other individuals, by designating a Trustee to handle those funds, and provide guidelines to that trustee as far as the payment of those monies. A Trust may be a beneficial tax planning tool for your Estate, and can also have other benefits, such as limiting creditors’ access to funds that you might leave, and also creating a steady stream of income to a beneficiary, as opposed to leaving the funds to them outright. People often use Trusts to ensure that their children receive their funds on a gradual basis.

We offer comprehensive guidance with regard to the establishment of Trusts. Our attorneys are skilled in handling your estate planning concerns and implementing effective trusts to address those concerns.

The Purpose of Trusts as Estate Planning Tools

When we help you create a trust, we make sure that the passage of funds is done correctly and efficiently. We understand that common reasons for creating trusts include the desire to transfer assets to younger adults with directives from their parents but that is not the only reason for a trust.

In other occasions, trusts are used as a very efficient mechanism to pass wealth and minimize tax consequences. Trusts help to pass assets and property on to children in a staged fashion so that there is asset preservation. Additionally, Trusts can protect against creditors, and also more clearly establish funds in the event of the divorce of a beneficiary. During the process of creating a trust, it is especially important to speak to attorneys who can help you take advantage of tax shelters and minimize tax liability.

Tax Saving Trusts in Pennsylvania

If your goal in establishing a trust is to minimize your tax liability, there are two common trusts that may offer you the protection you desire:

  • Credit shelter trust: The credit shelter trust, also called a bypass trust, allows you and your spouse access to your money and assets while you are alive. During your life, your spouse has broad discretion to use the money in the trust. In the event of your death, your assets are transferred free and clear of tax consequences to your heirs up to a certain monetary limit, currently $11.7 Million in assets. Only assets that are in one person’s name are eligible for the credit shelter trust so it is important to consider leaving assets in one name because otherwise assets and property go directly to your spouse upon your death and the transfer does not receive the important tax benefits provided by the credit shelter trust.
  • Marital trust: A marital trust is often established to allow all the money that does not go into a credit shelter trust to be passed along to a spouse. Marital trusts provide other tax shelters and, in some circumstances, are able to protect you from significant federal tax liability.

Implications From the Federal Estate Tax Lapse

Implications for federal estate tax limits is a complicated area that is changing quickly. The law in effect in 2021 allows you to pass up to $11.7 Million to a person other than your spouse without federal estate taxes. After that, everything you pass on will be taxed as a rate as high as 40%.

This law may be in a state of flux, so close attention should be paid by the individual to this area of estate planning.