A living trust is a legal agreement in which a person’s assets can be transferred and handled by an individual or corporation. The person or company managing the trust is called a trustee. Whether or not to create a living trust is a major decision that requires considerable thought and well-informed advice.

In Pennsylvania, whether your estate is large or modest, a living trust can be quite beneficial to you and your family because, unlike most states, Pennsylvania does not have a Uniform Probate Code. Establishing a living trust could save considerable time and money by minimizing or eliminating what could be a costly probate process.

That being said, it is wise to carefully consider if a living trust is the right estate planning vehicle for you. While such a trust offers more control over your assets, it is important to be sure you have the appropriate professional guidance to structure and fund the trust properly.

Assets typically considered for a living trust include stocks, bonds, mutual funds and other investments in nonretirement accounts, certificates of deposit, money market funds, and bank savings accounts that aren’t actively being used for check-writing.

Before you take steps to set up a living trust, it is important to know that, according to financial advisors, funding a trust typically involves retitling property and financial accounts. As a first step, a detailed accounting of your assets will be needed.

When it comes to real estate, often one’s biggest asset, placing that in a trust is well-advised, as it will decrease the time needed to transfer your home to your heirs. Additionally, if you have a home in another state, transferring that property’s title to a living trust will help you avoid probate in another state. To do so, you will need to create a new deed transferring ownership to your trust.

Keep in mind, you can set the trust up to be the beneficiary of your retirement accounts. Doing so allows you to decide how the money will be distributed and could help protect you from any creditors. However, the SECURE Act (Setting Every Community Up for Retirement Enhancement), passed in 2019, made it law that non-spouse beneficiaries use inherited IRA funds within 10 years.  For now, it is still unclear whether the law applies to an IRA left in a trust, so be sure to discuss that with an attorney, accountant, and/or your financial advisor before placing those accounts in a trust.

Make sure that you understand the difference between naming a living trust as a beneficiary of your retirement accounts as opposed to transferring them into your living trust.  Retirement accounts, such as your 401(k), IRAs, tax-deferred annuities and health savings accounts should not be transferred into living trusts. The IRS will treat such transfers as disbursements and tax them as such.

To learn more about a living trust and whether it makes sense for your financial situation, schedule an appointment with one of our tax advisors. As always, our experienced tax professionals are available to assist you with all your financial needs.