You've worked hard to build something meaningful. You have a home, retirement savings, and investments that represent years of smart financial decisions. Now, you're thinking about making sure everything passes smoothly to the people you care about. A revocable living trust might be part of that picture, but it's not a one-size-fits-all solution.
Before creating a living trust, you need to ask the right questions. Working with a Paoli estate planning attorney helps you think through the details that matter most to your family.
Do I Have Enough Assets to Justify a Trust?
Living trusts make the most sense when you own substantial assets or hold property in multiple states. In Pennsylvania, probate is often simpler than it is in some other states, so whether a trust is "worth it" depends on your asset mix, privacy concerns, and goals.
A properly funded revocable trust can allow your family to avoid probate for the assets titled in the trust. It may significantly reduce or even eliminate the need for a formal probate estate altogether. For someone with a simple estate, a well-drafted will might accomplish the same goals at a lower cost. A revocable living trust is not a tax-avoidance tool in Pennsylvania; its main benefits are probate avoidance, privacy, and incapacity planning.
How Do I Choose the Right Trustee?
Your trustee will manage every asset you place in the trust. While you serve as trustee during your lifetime, you must name successor trustees who'll take over if you become incapacitated or pass away. This person handles investments, pays bills, files tax returns, and eventually distributes assets to beneficiaries.
Think carefully about who has the right combination of financial judgment, integrity, and availability. Sometimes a corporate trustee, like a bank or trust company, makes more sense than family members, particularly when the estate includes business interests or when family dynamics could create conflicts.
What Assets Should Go Into the Trust?
Once you create a trust, you must actually transfer ownership of your assets into it through a process called funding. Real estate usually requires a new deed naming the trust as owner, which your attorney and your title company will prepare and record. Bank accounts need retitling. Investment accounts must be transferred.
If you don't fully fund the trust, your family may still need to open a probate estate for assets left in your individual name. Some assets shouldn't go in a trust at all. Retirement accounts like IRAs and 401(k)s come with specific tax rules that generally prevent transferring ownership into a trust during your lifetime. Using a trust as the beneficiary of retirement accounts can have significant tax consequences under current federal law, so this decision should always be coordinated with your estate planning attorney and tax advisor.
Who Should I Name as Beneficiaries?
A revocable trust gives you tremendous flexibility in deciding who gets what and when. Unlike a simple will that distributes everything immediately, a trust can hold assets for years, releasing funds according to your specific instructions.
You might direct that your grandchildren receive distributions at ages 25, 30, and 35 rather than inheriting everything at once. Imagine a situation where your son struggles with substance use disorder while your daughter is financially responsible. Your trust could provide your son with limited distributions for housing and medical care, managed by your daughter as trustee, while your daughter received her inheritance outright.
How Will the Trust Affect My Taxes?
Revocable trusts don't save income taxes during your lifetime. Under federal law, you still report all trust income on your personal tax return. For tax years beginning in 2025, Pennsylvania law also taxes the income of most grantor trusts directly to the grantor, rather than the trust itself.
Pennsylvania inheritance tax under 72 P.S. § 9116 applies whether assets pass through a will or a trust. In most cases, children and other lineal heirs pay 4.5%, siblings pay 12%, and other heirs (except spouses and charities) pay 15%. Certain transfers involving children age 21 or younger are taxed at 0%.
What Happens If I Become Incapacitated?
One of the most valuable benefits of a revocable living trust has nothing to do with death. Rather, it's about managing your affairs if you can't. A financial power of attorney lets someone manage your property if you become incapacitated. However, some financial institutions may still scrutinize or delay acceptance of these documents, especially if they're old or not drafted under current Pennsylvania law.
Your successor trustee can step in immediately when you're unable to manage your affairs, with no court involvement required. Your family can pay bills, manage investments, and handle property without asking a court for permission through a guardianship proceeding.
Does a Trust Protect My Assets From Creditors?
A revocable living trust does not provide asset protection during your lifetime. Because you can revoke the trust and still control the assets, they're generally still available to your creditors and counted for Medicaid purposes.
In other words, a revocable trust does not protect your assets from your own creditors or from long-term care/Medicaid spend-down while you're alive. After your death, assets held in trust for beneficiaries may receive some protection depending on how the trust is structured. Still, while you're alive, a revocable trust offers no such protection.
How Often Should I Review the Trust?
Creating a living trust isn't a one-time event. It requires ongoing attention as your life changes. Marriage, divorce, births, deaths, and significant financial changes all trigger the need to review and possibly amend your trust. Even without major life changes, reviewing your trust every three to five years helps identify provisions that no longer serve your current goals.
When federal estate tax exemptions changed dramatically over the past decade, many trusts included outdated provisions. Families who never reviewed their documents found these provisions created unintended problems.