What’s a living trust and how does it work in Minnesota?

by Flanders Law Firm LLC on March 8, 2013

Minnesota Living TrustThough Minnesota estate-planning terminology can sometimes be opaque to those not in the business, a living trust is an example of something that is just what it sounds like it is.

The term “living trust” refers to those trusts that are created while you are alive (also known as “inter vivos” trusts) rather than ones that are created after your death (testamentary trusts).  Minnesota living trusts can help in avoiding the pains associated with probate as well as reducing estate taxes and establishing a system for managing property.

These trusts can be either revocable or irrevocable.  The revocable living trust can be amended or discontinued at any time.  An irrevocable trust, on the other hand, cannot be modified or discontinued once it has been established.

Minnesotans who use a living trust must transfer title to their property into the trust.  The transfer moves the property from yourself as an individual to yourself as a trustee of the living trust.  No income taxes are due upon the transfer and because such transfers are not deemed a gift there are no gift tax consequences to worry about.

To help explain how the trusts work and what kinds of assets are best managed by them, we’ll walk through some examples.  First things first: real estate.  If you are like most Minnesotans, the most valuable thing you possess is property.

There are plenty of examples of people who create a living trust simply to avoid having their most valuable possession, their house, go through the time-consuming probate process.  Doing so can save a serious amount of time and money, which is why living trusts are such popular vehicles for managing real estate.

Small Businesses and Minnesota Living Trusts

Another instance where living trusts can be especially useful are situations involving small businesses.

Common sense would tell you that the lengthy and bureaucratic probate process could spell disaster for most small businesses.  This is because probate means that the person managing your estate, your executor, would have to run the business for weeks or months all while a court watches over their shoulder, supervising and authorizing day-to-day decisions.  Living trusts can be incredibly beneficial in such situations and allow you to transfer your interest in a business to another person quickly upon your death.  This ensures that your business, especially an important family business, keeps running without missing a beat.

Though there are a lot of assets that work well in a living trust, there are others that do not make much sense.  A good example includes those assets that you do not believe you will own at the time of your death.  Assets that you expect to flip or that you regularly buy and then resell are not items that are worth transferring into a living trust.  The process of buying and selling such items through a trust can be cumbersome and is often not worth the hassle.

Living Trusts and Retirement Accounts in Minnesota

Other categories of assets that are problematic in terms of a living trust include retirement accounts.  Retirement plans and 401(k)s cannot be assigned to a living trust.   These accounts must have an individual owner, like yourself.  There is a way around the rule and that is to name your living trust as a beneficiary for your retirement accounts.  Another asset that can’t be held by a living trust is cash.  Again, there’s a workaround.  Simply put your cash in a savings account or certificate of deposit and you can then assign that account to your living trust.

Those interested in establishing a living trust should understand one of the benefits of the vehicle is that once the trust is created it is not set in stone.  Because you are the grantor you will typically name yourself trustee, which means you will maintain complete control of your property.  As trustee you are permitted to add, sell and transfer property from the trust, even taking property out and placing it back in your name.

Living trusts are flexible vehicles that can prove extremely useful in certain circumstances.  An experienced Minnesota estate-planning lawyer can help walk you through the complicated process of establishing a living trust. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.

Source:Revocable Living Trusts,” by Gary A. Hachfeld, published at Extension.UMN.edu.

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{ 5 comments… read them below or add one }

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Larry Mattfield August 9, 2016 at 6:39 pm

If property is transferred from parent to son an a living trust arrange is agreed upon and one spouse dies, is that trust still extended to the living spouse? When does the trust dissolved?

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Larry Mattfield August 9, 2016 at 6:43 pm

Does the surviving spouse retain domicilary rights till death!

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