I’ve written about it in past articles so you are fully aware of the hurdles faced when presented with probate. The purpose of this article is to present the benefits of setting up a trust. You’ve learned that if you want to avoid probate and you have assets, the only viable option, is to use a trust. You also know that allowing your assets to pass to your spouse without a trust in place, is risky business. Now we’ll talk about how a trust really operates and why it’s so attractive to parents, professionals and business owners.
Black’s Law Dictionary defines a trust as, “a right of property, real or personal, held by one party, for the benefit of another”. There are three parties to a trust: the grantor, the trustee and the beneficiary. The grantor and the trustee enter into an agreement for the trustee to hold title to the property for the benefit of the beneficiary.
For purposes of this article, we will concentrate on two types of trusts:
The revocable trust is a trust that is created by the grantor while he or she is living. It is often used in planning for disability or death. It provides a mechanism for management of assets should the grantor become incapacitated. Revocable trusts can dispose of assets held in the trust at the death of the grantor all while avoiding probate.
Revocable trusts can also contain provisions as to how the property held in the trust is to be distributed at the grantor’s death. This may include directions as to creation of additional trusts at the grantor’s death. These types of trusts that come into effect only when a person dies are referred to as “testamentary trusts”. During the grantor’s lifetime, the trust may be amended or revoked and the grantor holds full control of the assets.
A trust that is created during the grantor’s lifetime but whose terms cannot be changed is referred to as an irrevocable trust. The income gift and estate tax consequences of an irrevocable trust depend on the trust’s terms. Generally, irrevocable trusts are used for tax planning purposes.
Some common types of irrevocable trusts include:
The purpose of a trust is often to keep a family out of court and out of conflict. The biggest incentive to Trust-based planning for some may be that it ensures their intentions will be realized. The uncertainty of a judge deciding how assets will be distributed and who will become guardians of minor children is removed with Trust-based Estate Planning. Another attractive feature is that trust-based planning is private. It is handled in the privacy of an attorney’s office instead of in the very public probate court where publishing of the estate is required.
Isn’t a trust expensive?
At the set up stage, a trust is usually much more expensive than putting together a will. But the benefits far outweigh the expense. As discussed in the previous chapter, the cost of probate can easily exceed $50,000 or more when factoring in court filing costs, publication and service costs, bond fees and attorney’s fees. The cost of setting up nearly all trust-based plans is significantly less than the expense and headache of a will-based plan that will guarantee your loved ones land in probate court.
Aren’t trusts complicated to set up?
An experienced Minnesota Estate Planning attorney who regularly advises clients in Trust-based planning can assist you. Template “form” style trusts are available online at a discounted price. However, I can’t emphasize the risk in setting up a plan without the assistance of an experienced attorney who is licensed in Minnesota. Laws vary from jurisdiction to jurisdiction. If the state requisite language isn’t found in your template trust, your discounted trust will not avoid probate.
Once the trust is created, it will need to be funded. The funding of the trust could be the most time-consuming aspect of the Estate Plan.
How do we fund the trust?
Funding of the trust requires that all of the assets going into the trust be retitled in the name of the trust. This is done by sending notices with instructions and the Declaration of Trust to brokerage firms, banks, and financial planners. Real property will also need to be retitled into the name of the trust.
For example, once retitled, a checking account with account holder “Sarah S. Smith” will be retitled “The Sarah Smith Revocable Living Trust”. Any bank statements mailed to Sarah S. Smith will read something like “Sarah S. Smith as Trustee to the Sarah S. Smith Revocable Living Trust”.
We have a unique situation. Can we address it in our trust?
Yes, you set the parameters for your trust. There are very few limitations and your imagination can run as wild as you like when creating your trust. Trusts may include any special language that outlines the client’s intentions.
It's not uncommon for me to hear parents ask if they can put language in the trust so their kids don't get the assets outright at age 18 if something should happen to them. For example, clients will make distributions to their children at three ages: 1/3 of the value of the estate at age 25, 1/3 at age 30 and the remainder at age 35.
I also have clients who ask me to include a lifestyle abuse provision in the trust. This type of provision places restrictions on the beneficiaries ability to take a distribution in the event of a drug or alcohol problem, gambling addiction, mental illness or if the child is going through a bankruptcy or divorce.
Now you understand the benefits a trust can provide and what type of provisions can be tailored into a trust. To set up your Trust-based Estate Plan, call Minneapolis-based Metropolitan Law Group PA at (612) 524-9414 to meet with Attorney Lisa Haster.
Lisa Haster is the founder of Twin Cities’ Metropolitan Law Group PA, JDsync syncing attorneys with support virtually and is a best-selling author.