Estate Planning · Trusts
Trusts in Pennsylvania: How They Work and When to Use One
A trust is a legal arrangement in which one party holds assets for the benefit of another. In Pennsylvania estate planning, trusts are used to avoid probate, plan for incapacity, manage assets for minor children or vulnerable beneficiaries, and control how and when assets pass after death. Whether a trust belongs in your plan depends on what you own, who you are providing for, and what you are trying to accomplish.
Trusts are not universally necessary. For many Pennsylvania residents, a well-drafted will combined with appropriate beneficiary designations and a durable power of attorney accomplishes the same goals at lower cost and complexity. But for estates with specific planning needs, a trust is often the right tool. The question is whether your situation calls for one.
This page explains how trusts work in Pennsylvania, the difference between revocable and irrevocable trusts, and the circumstances in which a trust adds meaningful value to an estate plan.
Lebovitz & Lebovitz, P.A., A Pittsburgh Law Firm With Roots to 1933. Serving Allegheny County and southwestern Pennsylvania.
A trust is a planning tool, not a requirement. It solves specific problems that simpler documents may not address as effectively.
If you are considering whether a trust belongs in your estate plan, call 412-351-4422 or schedule a consultation to discuss your specific situation.
What a Trust Is and How It Works
A trust involves three parties: the grantor, who creates the trust and transfers assets into it; the trustee, who holds and manages those assets according to the trust’s terms; and the beneficiary, who receives the benefit of those assets. In many revocable living trusts, the grantor, trustee, and primary beneficiary are the same person during the grantor’s lifetime. The trust becomes operative as a distribution mechanism at the grantor’s death or incapacity.
Assets must be transferred into the trust to receive its benefits. A trust document that is never funded accomplishes nothing. The funding process involves retitling real estate, bank accounts, investment accounts, and other assets from individual ownership into the name of the trust. Assets that pass by beneficiary designation, such as retirement accounts and life insurance, are handled separately and do not typically pass through the trust.
The trustee has a fiduciary duty to administer the trust in accordance with its terms and in the interest of the beneficiaries. Pennsylvania’s Trust Act, codified at 20 Pa.C.S. Chapter 77, governs trust administration in this state and defines the duties, powers, and obligations of trustees.
Revocable Trusts
A revocable living trust is the most common trust used in Pennsylvania estate planning. It can be amended or revoked by the grantor at any time during the grantor’s lifetime. Because the grantor retains control, the assets in a revocable trust remain part of the grantor’s taxable estate and are available to creditors. A revocable trust provides no asset protection and no tax benefit during the grantor’s lifetime.
What a revocable trust does provide is probate avoidance and continuity of management. Assets held in a properly funded revocable trust pass directly to the named beneficiaries at death without going through the probate process. This means faster distribution, reduced court involvement, and greater privacy, since trust terms are not public record the way a probated will is.
A revocable trust also provides a mechanism for managing assets in the event of the grantor’s incapacity. When the grantor becomes unable to manage their affairs, a successor trustee steps in without the need for court-supervised guardianship or conservatorship. This is often the most compelling reason to establish a revocable trust, particularly for individuals who own real estate in multiple states or who have a family history of cognitive decline.
Irrevocable Trusts
An irrevocable trust cannot be modified or revoked once established without the consent of the beneficiaries and, in some cases, court approval. Because the grantor relinquishes control over the assets transferred into the trust, those assets are generally no longer part of the grantor’s taxable estate and are protected from the grantor’s creditors. This trade-off between control and protection is the defining characteristic of irrevocable trust planning.
Irrevocable trusts are used for several distinct planning purposes. An irrevocable life insurance trust removes the death benefit from the grantor’s taxable estate. A special needs trust holds assets for a beneficiary with disabilities without disqualifying them from needs-based government benefits. A Medicaid asset protection trust transfers assets out of the grantor’s estate in anticipation of long-term care costs, subject to Pennsylvania’s five-year lookback period. Each type serves a specific function and requires careful drafting to accomplish its purpose.
The decision to use an irrevocable trust involves permanently giving up control over the transferred assets. That is not a decision to make without a full understanding of the trade-offs and alternatives. Not every Medicaid planning strategy requires an irrevocable trust, and not every taxable estate benefits from one.
Probate Avoidance in Pennsylvania
Pennsylvania’s probate process is generally less burdensome than in some other states, but it still involves time, cost, and public disclosure. A will must be admitted to probate before assets can be distributed. The process typically takes several months at minimum, and estates involving real estate, disputes, or complex assets can take considerably longer.
A properly funded revocable trust avoids probate entirely for the assets it holds. The successor trustee distributes trust assets directly to beneficiaries according to the trust’s terms, without court involvement. For Pennsylvania residents who own real estate in multiple states, this is particularly valuable, because a will requires ancillary probate in each state where real estate is located. A trust avoids that entirely.
Probate avoidance alone does not justify the cost and complexity of a trust for every estate. For smaller estates with straightforward assets and clear beneficiary designations, a well-drafted will is often sufficient. An attorney can evaluate whether the probate savings justify the trust setup and maintenance costs in your specific situation.
Incapacity Planning
A revocable trust provides continuity of asset management during incapacity in a way that a power of attorney cannot fully replicate. A power of attorney authorizes an agent to act on the principal’s behalf, but financial institutions and third parties sometimes refuse to honor powers of attorney, particularly older ones. A trust, by contrast, is a standing legal arrangement with a successor trustee already named and authorized to act.
When a grantor becomes incapacitated, the successor trustee takes over management of trust assets without court intervention. There is no need for a guardianship proceeding, no delay while courts appoint a guardian, and no ongoing court supervision of asset management. The trustee manages the assets according to the trust terms for the grantor’s benefit until recovery or death.
For individuals with significant assets, a history of cognitive decline in their family, or concerns about how a power of attorney will be treated by financial institutions, a funded revocable trust is a stronger incapacity planning tool than a power of attorney alone. Most comprehensive estate plans include both.
Trusts for Children and Beneficiaries
A trust is the standard mechanism for leaving assets to minor children or beneficiaries who lack the capacity to manage an inheritance. A will can direct that assets pass to a child, but without a trust, those assets may require court-supervised management until the child reaches age 18, at which point they receive the full inheritance outright. An outright distribution to an 18-year-old is rarely what the parent intended.
A testamentary trust, created within a will and funded at death, holds assets for a child’s benefit until a specified age or milestone. A standalone revocable trust can accomplish the same result while also providing probate avoidance and incapacity planning for the grantor during their lifetime.
Trusts are also used to provide for beneficiaries with substance abuse issues, creditor problems, or special needs, by giving the trustee discretion over when and how distributions are made rather than transferring assets outright. This level of control is not available through a simple will or beneficiary designation.
When a Trust Makes Sense and When It May Not
A trust is appropriate when one or more of the following applies: you own real estate in multiple states; you have minor children or beneficiaries who cannot manage an outright inheritance; you have a beneficiary with special needs or creditor issues; you want to avoid probate and the costs and delays it involves; you are concerned about incapacity planning and want a mechanism stronger than a power of attorney alone; or your estate has a taxable estate issue that trust planning can address.
A trust may not be necessary when your estate is straightforward, your assets pass primarily by beneficiary designation, and a well-drafted will combined with a durable power of attorney and healthcare directive accomplishes your planning goals. Trusts involve setup costs, funding requirements, and ongoing administration obligations. For many Pennsylvania residents, simpler planning tools are the right answer.
The best way to determine whether a trust belongs in your plan is to have an attorney review your assets, your family situation, and your goals. The answer is not the same for every client.
To discuss whether a trust is right for your situation, contact Lebovitz & Lebovitz, P.A. at 412-351-4422.
Frequently Asked Questions About Trusts in Pennsylvania
Do I need a trust if I already have a will in Pennsylvania?
Not necessarily. A will is sufficient for many Pennsylvania estates. A trust adds value when you want to avoid probate, plan for incapacity more effectively than a power of attorney allows, own real estate in multiple states, or provide for a beneficiary who cannot manage an outright inheritance. An attorney can evaluate whether a trust is worth the additional cost and complexity in your specific situation.
What is the difference between a revocable and irrevocable trust?
A revocable trust can be amended or revoked by the grantor at any time. The grantor retains control over the assets, which remain part of the taxable estate. An irrevocable trust cannot be modified without beneficiary consent and, in some cases, court approval. The grantor gives up control, but the assets are generally removed from the taxable estate and protected from creditors. The choice depends on what you are trying to accomplish.
Does a trust avoid probate in Pennsylvania?
Yes, for assets held in the trust. A properly funded revocable trust passes assets directly to beneficiaries at death without court involvement. Assets not transferred into the trust, and assets that do not pass by beneficiary designation, will still go through probate. Funding the trust is as important as drafting it.
Can a trust protect assets from Medicaid in Pennsylvania?
A properly structured irrevocable Medicaid asset protection trust can remove assets from consideration for Medicaid eligibility, but only if the transfer occurs more than five years before applying for benefits. Pennsylvania enforces a five-year lookback period. Assets transferred within that window are subject to a penalty period. This type of planning requires careful timing and legal guidance.
Who should be the trustee of my trust?
The grantor typically serves as the initial trustee of a revocable living trust. A successor trustee takes over at incapacity or death. The successor trustee can be an individual, such as a spouse, adult child, or trusted friend, or a corporate trustee such as a bank or trust company. The right choice depends on the complexity of the estate, the nature of the assets, and the trustee’s ability to manage financial matters and administer the trust impartially.