Category: Trusts and Succession Planning

Trusts are drafted to protect assets, but they are not foolproof in protecting against criminal indictment. The purpose of a trust is just as important as the trust corpus.

In Minnesota, we can turn to Trust Law 501C.0404 for guidance on an inditement. If a trust is established with the intent to defraud creditors for example, it may not be able to protect assets from seizure in the event of criminal charges. Additionally, if the trust is found to be involved in criminal activity or used to shield criminal proceeds, it may be subject to forfeiture by law enforcement authorities.

It’s important to note that simply creating a trust does not automatically protect assets from legal action. The legality and legitimacy of the trust, as well as the actions taken in establishing and managing it, are crucial factors that can impact its effectiveness in asset protection.

It’s always recommended to seek the advice of an experienced attorney with expertise in asset protection when or if you are charged with a crime or need support with asset protection issues.

Backup planning for a trust or estate plan can sometimes cause a lot of stress. After all, the process means thinking through dooms day. Sometimes, addressing a contingency plan is confusing. Really though, there isn’t a one size fits all. A backup plan is going to be personal and specific to each individual or trust grantor. As a result, here are a few things people often mean when reviewing their trust backup plan.

First, a backup plan is going to be different for each estate planning tool. In terms of a trust, a backup plan starts by determining what will happen when or if a trustee declines the opportunity to serve as a fiduciary. Other times, we are talking about the scenario when a trustee dies. Selecting an alternate trustee is the first issue to many unrelated matters that need addressing during the planning process.

Unfortunately, a well drafted trust agreement also means selecting an alternate and secondary trustees in the event they can no longer serve. If the trust document fails to mention what will happen, a beneficiary might be forced to seek a trust modification under Minn. Stat. 501C.0410. In other words, getting help from a court.

Seeking court approval to modify a trust due to a failed backup plan is hardly an ideal situation. This is true because for many families, the point of creating a trust in the first place was to put in place a probate avoidance plan.

Another popular reason for forming a trust is privacy. In other words, we do not want our assets and distribution choices shared in an open forum, like probate court. Because public proceedings breach privacy, modifying a trust in a public forum due to poor planning can feel disastrous.

Second, a trust agreement or declaration should always close the circle on backup trustees. In other words, identifying three or more people who can serve as a trustee isn’t good enough. Instead, offering a final strategy like a corporate trustee can really reduce the need for trust administration by way of the judicial process. For families who do not like like the idea of engaging a corporate trustee, sometimes selecting the eldest heir can also put the grantor of a trust at ease.

Again though, backup planning for a trust is more than thinking through dooms day or the resignation of a trustee. Backup planning also means addressing changes to our tax code, accounting for inflation, disabilities encountered by beneficiaries, and marital conflicts just to name a few.

Therefore, working through the backup planning process to a trust is very much as critical as the primary plan.

Separate trusts are good for some and bad for others. The issue is whether a trust should hold an exclusive asset like a retirement benefit or included as part of an aggregate?

Really, the issue depends on answers to a handful of questions:

• What is the value of the retirement account?
• How attentive to detail is the trustee(s)?
• Are beneficiaries old or young?
• Does your trustee(s) like the idea of managing a network of trust provisions?

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Commingled Trust Assets

An all encompassing trust that commingle assets can stink. First, doing so can be difficult for the trustee to pin down whether a distribution came from one asset or another. Second, the trust agreement must be clear on distributions.

From the perspective of Trustees and Trust Administrators, putting all assets into one trust probably isn’t ideal. That said, the terms of the trust is going to be the most important factor in reducing administrative nightmares.

Are Separate Trusts Worth It?

On the other hand, separate trusts might not be the best response either. Although there isn’t necessarily a set level where dividing retirement benefits from other assets is ideal, long-term costs should be addressed.

This is especially true when the beneficiaries are minors and the Grantor or Donor cannot predict the long-term needs for each child.

For some, a family pot trust may be a better option than having a separate trust.

One of Many Goals for Retirement Benefits

One size does not fit all. And, each family should put their own goals and needs first.

Here are reasons why a separate might be ideal:

• Control over selecting a specific trustee,
• Reducing accounting nightmares, and
• Locking in tax opportunities for an Eligible Designated Beneficiary.

Families considering one trust or weighing separate trusts have an important job. The job is putting loved ones first and making decisions on their behalf while there is still time.

Unfortunately, these types of decisions are layered with tax issues and finding the best path for an Eligible Designated Beneficiary.

Trust Types in Minnesota are Endless

Trust types in Minnesota are nearly endless. Whether you are set on a revocable trust or an irrevocable trust, there are far more than two trust types in Minnesota.

Always clarify the intended purpose of the trust. Then, picking a trust type is easier. The trust purpose is dependent on needs, the property being transferred, and the beneficiary. If you do not know the ideal purpose for your trust, seek help weighing the pros and cons.

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What Is a Trust?

A trust is a document or legal instrument establishing the terms and conditions of our property, which is a legal arrangement where a trustee holds and manages assets on behalf of a beneficiary or beneficiaries.

There are several types of trust documents, each with their own specific requirements and purposes.

A trust is a promise made by another person. The promise is exclusive to holding property safe on behalf of a beneficiary. The person making the promise is called a Trustee. 

The Trustee is given access to the property by a person called a Grantor.  In many cases, the Grantor and Trustee are the same person. That is, until the Trustee is no longer able to manage their promise.  Ideally, the promise is expressed and described in written format. 

What makes a trust complicated is the fact that there are many types of trusts.  In fact, there are more than 100 different types of trusts. 

The trust type is often specific to the Grantor, intentions for the Beneficiary, and a host of other planning goals.   For example, a trust can be used to avoid probate and navigate estate taxes. 

Also, a trust can be used to reduce stress when considering long term care, like a nursing home or skilled nursing facility. 

Other times, a trust is used to manage their business affairs, real estate, a family cabin, and protect their assets from creditors or a former spouse.  Additional trust types might involve special needs, titled property, military veteran matters, and or agriculture. 

Before you start focusing on selecting the right type of trust(s) that fit you and your goals, consider reviewing other frequently asked questions herein or attending an upcoming seminar to learn more. 

Audio About Trust Types

Revocable Trust Types

One common type of trust document is a revocable living trust. A revocable trust can be used by a single person, a married couple, and unmarried partners. This trust type allows the grantor(s) to maintain control over their assets while they are alive, and transfer them to a designated beneficiary upon death.

There are many disposition options available for this trust type. Even better, it can be modified or revoked any time during the grantor’s lifetime. A Grantor has options regarding pre-residuary gifts for tangible personal property, real property, intangible personal property, pecuniary gifts, and of course, pets.

In addition, this type of trust supports see-through options, single options, and separate trust options for a spouse, descendants, grandchildren, nieces, and nephews.

Irrevocable Trust Types

An irrevocable trust is a legal arrangement where assets are transferred by the grantor into the trust, relinquishing ownership and control permanently.

Typically this type of planning document is used for asset protection and tax efficiency, and offering beneficiaries security and assurance of receiving designated assets according to the trust’s terms.

Single Beneficiary Trust

A common type of irrevocable trust is a single beneficiary trust. This is a one named beneficiary for a period of years or for life. Several options are available for the term of the trust and the disposition of the remainder including several optional powers of appointment. Supplemental Needs Trust and “see-through” (accumulation/conduit) trust options are also available.

Children’s Trust

A children’s trust is not what you think. From an irrevocable persecutive, a children’s trust is when a grantor doesn’t retains a right to income or principal. This kind of trust can be either a grantor trust or a non-grantor trust. with the intent of making assets non-countable, children trusts are used to protect assets when transitioning into a nursing care facility.

For families domiciled in Minnesota, this type of trust is used most often for life insurance. That said, this type of trust is also used with special needs, elderly care matters (shielding assets from nursing homes), veteran benefits, protecting assets from creditors, and installment sales and purchase agreements.

Irrevocable Life Insurance Trust or ILIT

Another opportunity is an irrevocable life insurance trust (ILIT). This kind of trust holds assets for life insurance. That said, a life insurance trust can hold more than insurance. Features of this kind include life insurance provisions intended to save on taxes, Crummey Powers, Installment Options, and contingent martial triggers.

Tax Planning Options for a Trust

Tax planning for any kind of trust is an exclusive conversation. Indeed, there are opportunities for tax planning with every trust. Because Minnesota has an estate tax, tax planning is especially important.

Nonetheless, tax planning for either a revocable or irrevocable trust types includes reviewing disclaimer options, credit shelter or marital deductions, seeking excess exemptions like the formation of a QTIP, Generation Skipping Transfers (GST), or optional direction for a deceased spouse’s unused exemption amounts (“DSUEA”). In all, tax planning is a critical step.

Testamentary Trusts in Minnesota

A less common type of trust is created and administered using a will. In previous decades, testamentary options were very popular. Today, families see the conflict of forcing loved ones into a probate court process to form and facilitate their assets.

For those deciding between a testamentary trust, this type of document is established through a will, and only takes effect after a person dies. It can be revocable or irrevocable, and is often used to provide for minor children or other beneficiaries who may not be able to manage their own assets. Additionally, there are stronger options. Other planning options allow for immediate impact versus waiting on court approval.

All this aside, each type of trust document requires careful consideration and expert legal advice to ensure that it meets the grantor’s needs and objectives.

More Minnesota Trust Types

Further, opportunities are endless, when working through the purpose of a trust and various estate planning needs. To assist with your research, here is list of various trust types worth considering:

Lawyer For Choosing a Trust Type

If you’re searching for a trust lawyer near you, consider contacting this law office for a free visionary meeting, such that you can share your goals and planning needs.

Twin Cities Trust Planning Attorney

I meet potential clients by phone, email, video, one-on-one, and through educational seminars. If you live or work in the Twin Cities, great!  Do not allow where you live prevent you from contacting this law office for help.

This law office serves individuals and families near and afar. Even if you are limited to a cell phone, this law office can help. As a result, residing near Edina, St. Louis Park, Richfield, Eden Prairie, Bloomington, Minneapolis, Hopkins, Minnetonka, Saint Paul, Woodbury, Eagan, Burnsville, Plymouth, Blaine, Wayzata, or a city in-between, this law office is ready to field your inquiry.

Trust Planning Lawyer in Edina, Minnesota

Although located in Edina, MN, it is very common that an attorney from this law office to meet with Clients outside the Twin Cities area and in rural areas. After all, assets are often located in multiple counties and jurisdictions.

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A living trust shouldn’t feel like algebra. If you are considering a Living Trust or want to know more about what it means and how it works, then consider my simplified definition.

In general, this type of estate planning tool is a piece of paper that is controlled while we are alive. In other words, a document that allows flexibility.

When we die or become incapacitated, a living trust turns into an irrevocable trust. So, getting the living trust language right the first time is important.

If you need help addressing the good, the bad, and the in-between of this tool, you found the right place.

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Why Is It Called A Living Trust?

I see a lot of people who are fearful that a trust makes life more complicated. And, I see a lot of families get scared off by fancy names like a conduit trust, grantor trust, a see through trust, or even a “complex” trust.

For now, keep it simple. Just like there are hundreds of different makes and models of cars, there are an infinite number of trusts and types. Every trust is different because every person is different.

Now is not the time to turn back. Remember, this is about keeping this simple and down to one sentence versus outlining everything that you should write.

A Living Trust versus a Revocable Trust

Generally, a living trust and a revocable trust are one in the same. However, they don’t have to be. A living trust that is revocable too is a piece of paper that allows a person to terminate or end the trust.

Living Trust versus a Inter Vivos Trust

In Minnesota, a living trust and an inter vivos trust are the same. A living person who is at least 18 years of age creates a trust during their lifetime. The trust document be revocable or irrevocable, simple or otherwise.

Reasons for a Living Trust

In Minnesota, there are many reasons why a person or couple create a living trust. As a reminder, the reasons are different for every person and family.

In no particular order, a person entertains a living trust to:

• Avoid or reduce the risk of probate,
• Prevent the government from making decisions on their behalf,
• Make life easier for a spouse,
• Serve the needs of young children,
• Tax goals,
• Serve the needs of grandchildren,
• To assign a specific trustee,
• Privacy,
• Avoid time delays,
• Land owned in more than one state, and
• Reduce conflict.

Indeed, there are more reasons for having a living trust. However, the reasons are generally specific to each person and family.

Transfering a house into a revocable trust is the process of funding the trust. When this process goes bad, mortgage payments can balloon and property can end up in the wrong hands.

To reduce these risks, there are generally 4 issues needing review before a home is moved into a revocable trust.

Even though each issues is specific to the property itself, knowing what to ask may help homeowners make longevity decisions in favor of their spouse, children, or heirs. Sometimes, even pets.

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Transfering a House: The Big 4 Plus One

Five issues every family should consider before funding a revocable trust with their home include:

• What does the Deed say?
• Is there concerning Mortgage language?
• Will an Insurance Policy get revoked?
• Which Conveyance Form should be used?
• Are there tax consequences?

To Begin, Review The Deed

Perhaps i is obvious, but looking at the current deed of a property before moving a home into a revocable trust is an important step. Of course, there are others steps, but obtaining and reviewing the deed cannot be overlooked.

Reviewing the deed is important because the deed identifies the owner and legal description.

Then, these elements should be compared with other legal documents, like a marriage license or birth certificate or the County Recorder’s Office.

If either one of these elements are wrong, likely the deed should be corrected prior to a conveyance into a revocable trust.

Review the Mortgage

The next issue is determining whether the mortgage itself, supports a transfer. This is important because of the risk concerning due on sale clause. If there is more than one mortgage, then each mortgage needs to be reviewed.

Defaulting on a mortgage for an unauthorized transfer or breaching a due on sale clause are scary scenarios to be avoided at all cost. Likely, this means involving the mortgage company and asking the lender for an approval to certain documents.

Even though there are protective rules like the Garn-St. Germain Depository Institutions Act of 1982, the rule doesn’t account for every situation.

Thus, double and triple checking the mortgage language before funding a revocable trust with a home is non negotiable.

Homeowners Insurance Problems

Yes, transfering a house into a revocable trust can cause insurance problem or a lapse in coverage. The answer to this issue is also found within long winded insurance policies.

For this reason, inquiring with the homeowner’s insurance agent or asking the insurance company to add a trustee of the trust can prevent insurance problems.

Conveyance Forms

Conveyance forms are specific pieces of paper used in Minnesota to track property transfers. Upon first glance, Minnesota has more than ten pages of possible forms. As a result, guessing is not an option.

When a revocable trust us funded with a home, many families weigh the pros and cons of a quit claim deed versus a warranty deed.

Other times, families forego a conveyance all together and seek out a Transfer on Death Deed (TODD).

As a result, transfering a home into an inter vivos trust requires reviewing which conveyance form is best.

Transfering a Home and Tax Consequences

Preventing a taxable event before transfering a residence into a revocable trust is a common goal. Before conveying real property into a trust, reviewing the tax consequences from the perspective of the Grantor, Trustee, and Beneficiary is a necessity.

Other issues to consider is the homestead creditor protection or property tax exemptions. Otherwise, here is another great resource created by the IRS.

Final Funding Thoughts for a Home

Perhaps funding a revocable trust with a house looks daunting. That said, this is all about reducing risk.

From a practical perspective, taking prudent steps to prevent problems is easier than fixing problems.