Recent Changes to Pennsylvania Trust and Estate Statutes

Over the past year, certain changes to the Pennsylvania Probate, Estates and Fiduciaries Code (“PEF Code”) took effect. Three major developments are particularly noteworthy for Pennsylvania estate planners: (1) the amendment to the guardianship provisions in Chapter 55 of the PEF Code; (2) the amendment to the Pennsylvania Tax Reform Code of 1971 recognizing grantor trusts; and (3) the enactment of the Pennsylvania Directed Trust Act.

1. Guardianship Statute

Act 61 of 2023 (“Act 61”) became effective on June 11, 2024. This legislation amends Sections 5511 and 5512 of the PEF Code relating to the appointment of guardians for incapacitated persons. One of the key changes is the codification of the premise that guardianship should be considered an option of last resort.

Under Act 61, petitioners are now required to plead and “allege specific facts demonstrating that less restrictive alternatives were considered or tried and why the alternatives are unavailable or insufficient.” See 20 Pa. C.S.A. § 5511(e). Less restrictive alternatives may include the establishment of a trust, execution of a living will or other advance directive, or reliance on the health care representative statute under 20 Pa. C.S.A. § 5461 , as well as financial powers of attorney, designation of a Representative Payee for Social Security benefits, ABLE accounts, and similar arrangements. See 20 Pa. C.S.A. § 5512.1(a)(3).

Before ordering a guardianship, the court must make specific findings of fact that the alleged incapacitated person does not have adequate support from family or other available sources, making the guardianship necessary. Practitioners should be aware of the heightened obligation to explore and discuss these less restrictive alternatives with their clients.

Additionally, Act 61 imposes new requirements concerning legal representation. The petitioner must inform the court if the alleged incapacitated person is represented by counsel. If not, the court “shall appoint counsel to represent the alleged incapacitated person in any matter for which counsel has not been retained by the alleged incapacitated person.”See 20 Pa. C.S.A. § 5511(a.1)(2). Counsel “shall advocate for the client’s expressed wishes and consistent with the client’s instructions, to the extent the client is able to express wishes and provide instructions.” See 20 Pa. C.S.A. § 5511(a.1)(3).

Act 61 also established certification criteria for professional guardians—those seeking guardianship over three or more incapacitated individuals.

2. Pennsylvania Grantor Trust Act

Act 64 of 2023 (“Act 64”) will become effective on January 1, 2025, and makes substantial changes to the Pennsylvania income taxation of certain resident and nonresident trusts. Specifically, Act 64 provides that the classes of income under Section 303 received by a resident trust, and the classes of income received by a nonresident trust from sources within Pennsylvania, shall be taxable to the grantor of the trust—or another person—if the grantor or other person is treated as the owner of the trust under Sections 671 through 679 of the Internal Revenue Code of 1986, as amended. This applies whether or not such income is distributed or distributable to the beneficiaries of the trust or accumulated.

Prior to January 1, 2025, the income or gain of a trust that was either distributed or credited to a beneficiary was taxable to that beneficiary, or, if retained by the trust, taxable to the trust itself. Under Act 64, income and gain associated with a grantor trust may be taxed to the grantor, regardless of distribution.

For example, consider a grantor who owns an interest in a private company and transfers a minority interest in that company to an irrevocable grantor trust established for the benefit of grandchildren. If the company is subsequently sold in whole or in part, and the irrevocable trust participates in the sale, any capital gains tax attributable to the trust may now be paid by the grantor—at both the federal and Pennsylvania income tax levels.

Act 64 aligns Pennsylvania’s treatment of grantor trusts with federal tax law, under which grantor trusts are considered disregarded entities. This allows trusts to grow without the immediate pressure of paying their own tax liabilities, where such treatment is permitted and appropriate.

3. Pennsylvania Directed Trust Act

On July 14, 2024, Act 64 of 2024 implemented Sections 7780.11 through 7780.27 of the PEF Code, known collectively as the Directed Trust Act. This new law introduces greater flexibility in the structuring and administration of trusts by formally recognizing several additional roles.

The Directed Trust Act establishes three new permitted positions within trusts:

1. Trust Director
2. Trust Director for Investments
3. Trust Protector

Section 7780.12 of the Directed Trust Act sets forth important definitions:

• A “directed trust” is “[a] trust for which the terms of the trust grant a power of direction.”
• A “directed trustee” is “[a] trustee that is subject to a trust director’s power of direction.”
• A “trust director” is “[a] person that is granted a power of direction by the terms of a trust to the extent the power is exercisable while the person is not serving as a trustee.”
• A “trust protector” is a “trust director authorized by the terms of a trust to modify one or more terms of the trust.”

The Directed Trust Act expands upon the powers that a settlor may convey to these fiduciary positions. However, the terms of the trust instrument will always control the scope and exercise of those powers. Notably, Section 7780.19provides that these positions are fiduciary in nature—a marked distinction from the approach taken by other states with similar statutes.

Practitioners should also take note of specific notice provisions required under the Act. Overall, the Directed Trust Act provides valuable flexibility to tailor trust administration and to modify trust provisions as necessary to meet the evolving demands of tax law and estate planning.

Note: This article was written by George M. Riter, Esq., Probate & Tax Section Chair, and Elizabeth L. Ferraro, Esq., Probate & Tax Section Secretary, of the Montgomery County Bar Association, and originally published in the Montgomery Bar Association Newsletter, Winter 2025, Page 31. and is brought to you by the RJ Fichera Law Firm , where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters.

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