Estate planning involves important decisions to protect family resources and achieve long-term financial goals. When high-value assets are involved, those decisions become even more critical. Establishing a trust can provide peace-of-mind and clear direction to your heirs.

“There are few decisions as important as how to protect and create a financial legacy for your family,” said Anna Vitelli, head of PNC Private Bank Hawthorn. “Using a trust to manage family assets can ensure you can achieve your financial goals for your family.”

What Is a Trust?

A trust is a form of property ownership that separates the beneficial ownership of assets from the legal ownership. To establish a trust an owner (grantor) transfers ownership of assets to a trust to be managed by a trustee, who uses trust assets for the beneficiaries of the trust (open the grantor’s heirs). Trusts can be used to provide financial support for family members, protect family assets from various risks, and create tax efficiencies.

There are two types of trusts: revocable and irrevocable. A revocable trust allows the grantor flexibility to benefit from the trust and amend its terms during their own lifetime. Because the trust is revocable the grantor may remove assets from the trust. The terms of the trust will direct what the trustee may or must do with its assets and how assets are to be handled upon the death of the grantor.

Benefits of using a revocable trust include:

  • Asset management – Grantors can use a revocable trust to separate assets, allowing them to be managed and distributed separately from other assets.
  • Protection from incapacity – With the appropriate terms, a revocable trust allows the trustee (or a successor trustee, if the grantor is the original trustee) to continue managing assets in the trust in the event the grantor is incapacitated.
  • Probate benefits – Because assets in a revocable trust are no longer owned by the grantor, they do not need to go through the probate process upon the grantor’s death.
  • Privacy – Wills that proceed through probate generally become public records, but in most jurisdictions a revocable trust does not.
  • Estate disposition – A revocable trust can serve as the primary vehicle for distributing a grantor’s assets to heirs after death.

“Revocable trusts are attractive because they’re generally flexible and can change or be dissolved to fit the evolving needs of both grantors and beneficiaries,” Vitelli said. “It can be a more private and cost-effective way of ensuring your estate passes to your heirs in exactly the way you want it to.”

The second type of trust is an irrevocable trust, which, as the name implies, cannot be changed after having been created. Nevertheless, many states do have laws that allow an irrevocable trust to be changed through a court proceeding or a non-judicial settlement among the parties to the trust.

Irrevocable trusts are generally meant to be longer-term instruments and can be in effect for decades or in some cases in perpetuity. This requires extensive planning and, often, the use of a specialist attorney to prepare the instrument. There are many different types of irrevocable trusts. Among them are trusts to hold life insurance, trusts to manage and protect property for many generations, trusts to reduce estate and gift taxes and trusts to help transfer businesses.

Irrevocable trusts can be especially attractive for large estates. Unlike revocable trusts, where the grantor retains control over assets in the trust, assets placed in an irrevocable trust are no longer property of the grantor, and (unless certain exceptions apply) are not part of the grantor’s taxable estate (and subject to estate tax). It’s important to consult legal and tax advisors on the tax implications of placing assets in and distributing assets from an irrevocable trust.

Setting up a trust

A trust involves complex decisions about assets, beneficiaries and trustees. You’ll want to assess what assets should be transferred to the trust, how you want them to be distributed, and the tax implications of those decisions. Because you’ll need legal, tax, and financial guidance, it’s important to remember that establishing a trust can be a time-consuming exercise and may include the payment of legal and accounting fees. Your PNC Private Bank team can help you determine if a trust may be right for you.