This question is by far the most asked question that we receive in our office. However, there is absolutely no standard or right answer for everyone. Trusts are typically used for either probate avoidance purposes, tax avoidance purposes, or asset protection. Trusts are often used for disability planning but generally, that is not the sole reason for people’s use of trusts.
Currently, the federal estate tax limit provides an $11.7 million exemption per person. This means that an individual currently will not pay federal estate tax unless their estate, per person, goes over $11.7 million or $23.4 million for a husband and wife. This law is set to go back to $5 million in 2025, set for inflation which predictions are that it will end up being around $5.8 million. Even with the reduction in 2025, most people in our local community will not need to do a trust for tax purposes. Certainly, there are rumors each and every day about Congress changing the laws and lowering the exception amounts, but until that happens, I would not make plans for something that may or may not occur. History tells us that all of the rumors that we are hearing, probably none of them will actually look like the actual law if it is ever enacted, and we have always taken the position to plan for the law as it is in effect, and if and when it changes, then we can pivot. With that said, there is not a high percentage of people who will need to do trusts for tax purposes as we sit here today in May of 2021.
Probate avoidance is usually a situation where there are properties in several different states across the country. While every state has different laws as to whether a person needs to open an estate in their specific state, generally speaking, if the property is in a person’s name alone at the time of their death, the state will require them to go through that state’s probate process. We find that many people like to avoid probate in these situations so that they do not have to hire attorneys in each state to finalize for their families. In a situation where a family does not have properties in multiple states, generally, probate avoidance is not something that people are overly concerned about unless they’re in a state that the probate process is very burdensome and overwhelming, which currently, it does not happen to be in the Commonwealth of Pennsylvania.
Asset protection is one reason that people will often do trusts in the Commonwealth of Pennsylvania, to avoid potential creditor issues and long-term care costs. These are a very specific animal of trusts and the rules are very unique to these trusts alone since they are not being set up for tax purposes. It is our recommendation that you speak to a professional well-versed in these types of trusts before completing one. They are very unique and there are very simple rules; however, it is very easy to make mistakes in this area. An elder law attorney well versed in these types of trusts will be able to provide advice as to whether this type of trust makes sense for you. There is no one size fits all answer to the question of “do I need a trust?”. It is important to get very clear on your personal goals and what your goals are for your family. Once you have a very clear picture of that, then a professional will be able to advise you, based upon your current situation, as to whether it makes sense. We would certainly be honored to assist you through this process, and we offer weekly workshops which will give you insight into the thought process in regards to whether trust is right for you. We look forward to seeing you in the future.
If you are looking for advice in regards to estate planning, please call our office at 717-845-5390 or click the link here and we will contact you.