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Trusts
Trusts in St. Cloud, Minnesota
A trust can be an effective estate planning document, depending on the size of your Minnesota estate and what you are trying to accomplish with it.
A Trust, Explained:
A trust is a legal document to hold and manage your property. When you put your assets into a trust, you transfer them from your ownership to the trust’s ownership. The trust can hold the property for your benefit, or for the benefit of any other person you choose.
You can set up a living trust to use during your lifetime, or a testamentary trust that will take effect upon your death.
What a Trust Can Do That a Will Can’t:
A trust provides benefits that a will doesn’t:
- Holds property while you are alive.
- Can lower your taxes.
- Quickly transfers your property to beneficiaries.
- Flexibly transfers property.
- Avoids probate.
- Protects your privacy.
People Who Should Have a Trust:
There are many reasons to set up a trust in St. Cloud. Here are the main ones:
- Minor Children: Parents can use a trust to provide for their children after death. (The parents may also transfer money through the Uniform Transfers to Minors Acts).
- Spendthrift Children: Parents can set up a trust for an adult child who struggles to manage money prudently.
- Special Needs Children: Parents can use a trust to provide for the special-needs child.
- Retirement management: You can use a trust to manage funds during retirement.
- Tax Planning: You can use a trust to lower your taxes if your estate is large enough.
- Charity: You can establish a charitable trust.
People Who Do not Need a Trust:
If you are young, single, or newly married, you likely do not need a trust. In the St. Cloud area, a trust is likely to be more expensive than a will.
Trust Terms
- Grantor, Donor, Settlor: The person who sets up the trust.
- Beneficiary: The person who benefits from the trust.
- Trustee: The person or institution trusted with carrying out the trust’s provisions.
- Successor Trustee: The back-up trustee who steps in if the first trustee dies or resigns.
- Trust estate: All the property transferred into the trust.
- Trust agreement: The legal document itself.
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Testamentary Trusts:
A will can set up a testamentary trust which goes into effect at probate. The will transfers property to a trustee, to hold in trust for beneficiaries. A testamentary trust goes through probate, so if your goal is to avoid probate in Minnesota, it is better to set up a living trust.
Revocable Living Trusts:
A living trust is a legal document executed during the grantor’s life. When the grantor dies, the trustee distributes his assets according to the trust’s terms.
The grantor assigns a trustee, who can be anyone: the grantor’s spouse, a financial institution, or even the grantor himself.
With a revocable living trust, you can sell, spend, or give trust assets while you are still alive. You can also change the trust’s terms. Assets in the trust avoid probate, and the trust keeps your assets private. A trust can help you plan for incapacity as well, because an alternate trustee can serve when the original grantor is no longer capable.
A revocable living trust does not have income or estate tax advantages during your life, though you can sometimes set it up to minimize your beneficiaries’ estate taxes.
Irrevocable Living Trusts:
An irrevocable living trust helps wealthy grantors save on estate tax. Putting property into an irrevocable trust is a gift. When you put property into an irrevocable trust, you lose control of the trust. You should set up an irrevocable trust if you are wealthy, want to minimize estate taxes, and can afford to make gifts to others.
Funding Your Living Trust:
Funding a trust in St. Cloud means putting property into it. Once a trust is set up, you can add more assets.
Some living trusts have contingent funding (like when a life insurance policy names the trust as its beneficiary). Other trusts are partially funded at first and added to later. One popular option in Minnesota is to fund a trust at the grantor’s death, using assets from the will. This is known as a pour-over will.
A Trust Can Enhance Your Retirement:
If you are in your late 60s, have a home and substantial investments, and want the option to have someone else to act as a trustee and handle your estate so that you can spend your retirement enjoying other activities, then a trust may work well for you.
Such a trust might contain the following provisions:
- You (and your spouse) as trustees.
- A trust company or bank as the alternate trustee if you become incompetent or decide to resign as trustees.
- Trust income paid to you.
- Trust principal used by you.
- You can add or take out assets.
- You can revoke the trust at any time, except after the survivor becomes incompetent or dies.
You can put all or part of your property into such a trust. The best property to put into a trust is liquid investments such as stocks, bonds, and mutual funds.
Downsides to a Living Trust:
One potential downside to putting your personal property (like cars and household goods) into a living trust is the record-keeping. If you put your house into a trust, you must prepare a deed to show the trust holds the legal title. You will have to account for household goods and cars if you sell or exchange them.
Select the Right Trustee:
The trust (and Minnesota law) specify the trustee’s duties. Always check that whoever you choose is willing to be your trustee.
A trustee has many duties:
- Administering the trust.
- Managing the trust property. This can include investing trust assets.
- Keeping trust accounting records.
- Filing trust tax returns and making tax decisions.
- Distributing assets to the trust’s beneficiaries.
- Ending the trust at the specified time.
Usually, you (and your spouse) make the best trustees. Another popular option is to appoint co-trustees, where one trustee understands your situation, and the other is an institution that is equipped to manage the trustee’s duties.
Because trusts are not supervised by a court, it is wise to require an annual accounting to the trust’s beneficiaries. If you decide to name an institution as your trustee, it is best to research the trust departments at St. Cloud area banks. Usually, their fees will be less than one percent of the trust assets. Investigate their investment policy and learn who is likely to be assigned to invest your assets.
Should You use a Trust and/or a Will in St. Cloud?
Even if you have a trust, you will also need a will. The first reason for this is that it can be a nuisance to put all your personal property into a trust. Many assets work best outside your trust.
The second reason is that you need a will to cover the residue of your estate in St. Cloud. A trust will not solve every problem, though it can be a key link in a carefully considered estate plan.
One popular option in Minnesota is to set up a pour-over will, where you set up a trust as the beneficiary of your will. Then the trustee distributes your assets according to the trust’s terms.
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