When people think of Trusts, they may think of very wealthy people who have lots of assets that need to be protected. While it is true that large estates should almost always have Trusts to manage the transfer of property, in Minnesota a lot of average-income families are discovering the benefits of setting up a Trust as well. Speaking with an attorney that creates Trusts and other estate planning documents for a living is the best way to find out if a Trust is right for your estate plan.
A trust is a set of instructions for people near to you. As a legal matter, it is a contract that serves to manage assets by one person or entity - the Trustee - for the benefit of others who are the beneficiaries. A trust creator referred to as the "settlor" or "grantor" creates the trust, usually contributes assets to the trust, appoints a trustee to manage the trust and its assets and designates the beneficiaries of the trust. The Trustee has a legal responsibility to manage the assets of the Trust for the benefit of the beneficiaries.
Depending on how the trust is set up, the beneficiaries can have some rights to the assets immediately-for example, the beneficiaries can be entitled to any interest or profit earned by the trust each year-and/or the beneficiaries can have rights down the road, as in a trust that grants its assets to the beneficiaries when the beneficiaries reach a certain age. Trusts can have many uses in estate and legacy planning, since they can provide much more flexibility than a straight grant of property.
A variety of trusts is available and used, depending on client's goals and objectives, including tax savings and Medicaid eligibility. Examples may include:
Revocable Living Trust. Also referred to as a Revocable Trust or Living Trust, this trust is established during the trust maker's life to determine disposition of his/her assets should he/she becomes mentally disabled and upon his/her death. This type of trust is central to most estate plans. During the trust maker's life, the trust maker can be both the trustee and beneficiary of the trust, and therefore have complete control over, and derive all benefits from and pay all taxes on the trust assets during your life. The Living Trust identifies specific trustees and beneficiaries to be automatically designated upon the disability or death of the trust maker.
This trust can protect your assets for loved ones while also providing a vehicle for leaving them instructions. A fully funded Living Trust can also help avoid costly and time consuming probate proceedings. Care must be taken not only to fund these trusts by changing assets into the name of the trust, but also to keep them funded during your lifetime.
Family and Marital Trusts. These are often sub-trusts within a Living Trust or sometimes contained in a Will. The purpose of these trusts is to maximize the amount of property that may be passed on free of state and federal estate tax and to ensure that no estate taxes will be owed until the death of the surviving spouse. To achieve these tax-saving goals, the Living Trust is divided usually into sub-trusts.
Marital Trust is usually divided for tax-saving purposes in two sub-trusts in order to take advantage of the state and federal estate tax exemptions for the sole benefit of the surviving spouse during his or her life.
Family Trust or Credit Shelter Trust can be for the benefit of the spouse, children, and/or any other beneficiaries. Details of this type of trust depend on your circumstances and estate planning objectives.
Irrevocable Trust. An irrevocable trust is a trust that cannot be modified once created, and is best used to make a permanent gift. Because the trust maker has relinquished control over whatever assets may be put into these trusts, care must be taken in drafting the instructions for the Trustee and for use by the beneficiaries of the assets. Different types of irrevocable trusts accomplish different objectives, and can be used in conjunction with a Living Trust to maximize estate tax savings and protect and transfer wealth.
Special Needs Trust. A special needs trust, also known as a supplemental needs trust, is a trust whose beneficiary is an individual who has a disability and who may be eligible for governmental assistance in the form of Supplemental Security Income, subsidized housing, Medicaid, etc. Because these programs are generally needs-based, eligibility to receive benefits is dependent on falling below certain wealth thresholds. Assets held in a Special Needs Trust for the benefit of a person with a disability, if set up properly, will not be counted towards determining that person's total assets, so they will not impact eligibility for governmental aid.