Estate planning attorneys are frequently asked if a client needs a trust as part of their estate plan. Usually, this question arises when a client hears that their friend, neighbor or family member has a trust in addition to a will. Whether you need a trust or not depends on your individual circumstances and goals.

Trusts vary in terms of their type and purpose. Some trusts are created during your lifetime and used to transfer ownership of some of your assets at your passing. These lifetime trusts are typically used in conjunction with a will. Since it is not likely that every asset you own is titled in the name of your trust, a will serves the purpose of capturing the assets that remain outside of the trust and passing them on to your beneficiaries.

Lifetime trusts are either revocable or irrevocable. Revocable trusts are the most popular lifetime trusts. Also known as “living trusts,” they primarily serve to avoid probate. Probate is the court-monitored process of transferring the solely owned assets of the deceased (that is, assets that are not jointly owned or do not have beneficiary designations) to the intended beneficiaries.

In some states, such as Florida and California, the probate process can be expensive, time-intensive or require court approval for many aspects of probate. Since every state has its own probate process, not all estate planners have the same incentive to avoid probate. Pennsylvania’s probate process is not that cumbersome, therefore avoidance of probate in Pennsylvania is not always an estate planning goal.

Costs of a revocable trust can range from $3,000 to $5,000 dollars, depending on the attorney’s fees and the amount of time expended on funding the trust. Keep in mind, for a living trust to avoid probate, your assets must be titled in the living trust. You must transfer your home, bank accounts, investments and other assets to the living trust. The cost of creating and funding the revocable trust may outweigh the savings associated with avoiding probate.

In Pennsylvania, revocable living trusts do not save inheritance tax. The rate of the inheritance tax depends on who inherits the deceased’s estate. For children and grandchildren, the rate of tax is 4.5%. For siblings, it is 12%, and parties other than the spouse or charities (0%), the rate is 15%. Revocable trusts do not eliminate the need for an attorney in most cases. Trust administration still requires notices to beneficiaries, notices to creditors and settlements with beneficiaries who typically receive an accounting of the estate before a settlement agreement is signed.

Revocable living trusts are more attractive if you have real estate in more than one state. Snowbirds who own a condo in Florida often want a revocable living trust so they can avoid probate in Florida. Another reason for a revocable living trust is asset management by a professional trustee, such as a bank’s trust department. Banks will serve as your trustee if you do not have a family member who will step in to assist you as you age.

Lifetime trusts can also be irrevocable. However, these trusts accomplish a goal other than probate avoidance. They are often used to shelter or protect an asset from some particular cost, often nursing home expenses. Transferring your home to an irrevocable asset protection trust can shelter your home from the cost of care in a nursing home if the planning is done at least five (5) years prior to applying for government assistance.