Reasons to Establish a Trust

Trusts are an important tool in estate planning and may be created for a variety of reasons, which can include both tax and non-tax reasons.

Trusts may be established during an individual’s life, which is called an intervivos or living trust.  A Living Trust does not require probate or court supervision.

It is also possible to create a trust upon your death if your Will contains certain provisions.  This type of trust is called a Testamentary Trust.  Before a Testamentary Trust is created, however, the Will must go through the probate process, which can be lengthy and expensive.

Often times a Testamentary Trust is included in a Will for parents with young children.  The will provides that if both parents pass away that the trust be created for the benefit of their surviving children.

Non-tax reasons to establish a trust include:

Avoid Probate / Privacy Concerns – Assuming you trust is funded properly and holds title to your assets upon your death, your successor trustee can step in immediately upon your death to begin administering your estate, unlike in probate cases where it can take several months to get an executor appointed by the court.

Incapacity of a Beneficiary – A minor is considered incapacitated and cannot hold title to property.  You can set up a trust to manage the property on behalf of the minor beneficiary and designate the terms of any distributions to that beneficiary.

Another type of incapacity is an individual with a mental or physical disability that may benefit from a trust.  There are several types of trusts that may be used in this situation and can include a Supplemental Needs Trust or Special Needs Trust.

Spendthrift Children / Children with Substance Abuse Issues – If you have children that are poor money managers or have drug or alcohol issues, the trust can be a to help manage funds for the benefit of that child, and can specify the payout and other terms you want included.

Managing a Particular Asset Like the Family Cabin – Family cabins are very common in Minnesota and often families wish to keep them in the family for multiple generations.  Title to the cabin is transferred to the trust, which may also be set up to include additional funds to pay for property taxes, maintenance, and upkeep of the property.  The trust can also detail terms for use of the property and how to “buy out” a beneficiary if that becomes necessary.

Real Estate Owned Outside Minnesota – If you own in your own name real estate located outside of Minnesota at the time of your death, your family would need to go through probate in the state where the real estate is located.  This process, called an Ancillary Probate, could be expensive and time-consuming.  An Ancillary Probate can be avoided if your trust owns all real property, wherever located in the United States.

Business Succession Planning – A trust may hold the stock of a closely-held family business.  After you pass away, your Trustee would have the power to vote the stock.  This is a good way to ensure that the operation and control of the family business can continue.

Estate Tax Savings – In addition to these many non-tax reasons to establish a trust, there are tax reasons as well.  One such reason is to minimize the Minnesota Estate Tax.  Each Minnesotan currently has a $1,800,000 state estate tax exemption.  But unlike under the Federal Estate Tax, Minnesota’s Estate Tax is not portable between spouses.  That is, when the first spouse dies, everything can be passed to the surviving spouse estate tax free.  But when the second spouse dies, her estate can only use her single $1,800,000 exemption.

In order to increase their family’s state estate tax exemption amount, a married couple can set up an AB Trust.  This trust splits the total family assets into two smaller shares when the first spouse dies.  Each resulting trust is structured differently.  That way, both spouses’ estate tax exemptions can be applied.  This results in a married couple avoiding any state estate tax on assets worth up to $3,600,000.

Minnesota adopted a modified version of the Uniform Trust Code that became effective on January 1, 2016.  Minnesota’s Trust Code is one of the strongest in the United States, and includes some protections that other states’ laws do not have.  Trusts created in Minnesota can own assets anywhere in the United States.  Trusts created in Minnesota are also recognized in every other state, making them convenient for people who may move later in life.

How can I decide if a Trust is right for me?

Call today to schedule your complimentary estate planning consultation with Ed Matthews.

Ed Matthews is one of only a few attorneys in the state of Minnesota who is also a currently licensed Certified Public Accountant (CPA).  Ed graduated summa cum laude from William Mitchell College of Law in 2003, where he served as Executive Editor of the Law Review.  He is a former Minnesota Supreme Court law clerk.  Perhaps, most importantly, he does not practice probate!  Instead, he has dedicated his life to helping Minnesota families avoid probate and protect their hard-earned assets.

To schedule a complimentary consultation with Ed Matthews, call (651) 501-5608.