Trusts as Part of an Estate Plan in Minnesota
Trusts can be a vehicle to manage your assets both during incapacity and after death. The legal team at Blahnik, Prchal & Stoll can assist you in deciding whether the cornerstone of an estate plan should be a revocable trust, a will with trust, or a basic will.
A trust is a legal entity that holds title to property. A trust provides a mechanism for someone else to manage trust assets in the event of one’s disability or death. In Minnesota, a trust can eliminate the need for a probate proceeding, secure privacy for the trust creator, provide for seamless transitions for business interests, and provide specificity to minimize family conflict.
Types of Trusts
There are many different types of trusts but the most common are:
revocable trust or "living" trust
supplemental/special needs trust
life insurance trust (ILIT)
qualified personal residence trust (QPRT)
qualified domestic trust (QDOT)
Revocable v. Irrevocable Trust Planning
Among the different types of trusts, include irrevocable and revocable trusts. An irrevocable trust is a trust where you relinquishes ownership and control of assets now and preserve assets for beneficiaries. One reason to create an irrevocable trust is for estate tax avoidance. However, now that Minnesota’s estate tax exemption is $2.7 million per individual gross estate ($3 million 2020), taxable estates are less common.
A revocable trust is a trust that allows you to be trustee of your own trust and maintain control of assets during your lifetime. Some of the benefits include minimizing estate tax, providing immediate support to a surviving spouse or beneficiaries, probate avoidance and the list goes on. Sometimes it is advisable to create an individual revocable trust, and sometimes couples can create a joint revocable trust.
A revocable trust is a trust created by an individual while he or she is still living (i.e. living trust). A revocable trust is a simplified way to plan for disability and death. Revocable trusts provide a mechanism for the management of assets if someone becomes incapacitated. Further, revocable trusts may dispose of assets held in trust (money, real estate) at the death of an individual without the need for a probate proceeding. The cost of a revocable trust would still include the drafting of a “pour-over” will to ensure any assets not held in trust (perhaps purposely or inadvertently) would be distributed accordingly. At Blahnik, Prchal & Stoll a joint revocable trust costs approximately $2,500.00 and depends on how many assets are re-titled to the name of the trust (bank accounts, real estate, etc.). The cost estimate includes health care directives and power of attorney documents, as well as other trust transferring documents (i.e. funding the trust).
A revocable trust does not have any estate tax avoidance. That is because the assets are still included in the calculation of the gross estate, unlike those held in an irrevocable trust. However, given that many people do not know what state they will be living in at the time of death or when their trust assets are ultimately distributed, oftentimes it is not advisable to create an irrevocable trust because of the relinquishment of ownership and control of assets during the trust creator’s lifetime. Further, while an irrevocable trust can be drafted to provide for Minnesota estate tax savings, holding on to appreciating property has its advantages as well. Any low tax-basis assets (think assets that were purchased at a much lower price than the current market value) that transfer upon death receive a stepped-up tax basis and avoid capital gains tax on the appreciation. Any assets transferred during someone’s lifetime, transfer to the recipient with a carry-over basis and when liquidated, will trigger a capital gains tax obligation.
Contact Blahnik, Prchal & Stoll to Determine What Trust is Best for Your Situation
Don’t worry, you do not need to determine what trust you want before contacting our law firm, or any law firm. The experienced legal team at Blahnik, Prchal & Stoll will advise you on the pros and cons to the various trusts, and which trust is best for your situation (if any). We will help you make this decision, will explain the details of the various trusts and will give you step-by-step instructions on what to do once we create a trust for you. Our law firm provides a complimentary one-hour consultation to discuss your estate planning needs and whether a trust should be part of that estate plan.