If you are 18 years of age or older, and if you have a family, real estate, or if you own a business in Minnesota, it’s not too early for you to begin the estate planning process. You will need the advice, guidance, and insights that a Minneapolis estate planning attorney can offer.
Planning your estate consists of making the wisest possible choices and expressing your choices in legal documents to ensure that your instructions will be honored after your death. Trusts and wills are important estate planning documents that accomplish several of the same goals.
However, if you have real estate holdings or other substantial assets, consider preparing a properly-drafted and properly-funded trust which can ensure that your estate will be managed – and when the time comes, distributed – according to your instructions and wishes.
What Is an Irrevocable Trust?
An irrevocable trust is usually created for a specific or limited purpose such as estate tax reduction, asset protection, gifting, or income tax reduction.
Once they have been set up, irrevocable trusts may not be revoked or even revised. When an asset or property is moved to an irrevocable trust, it must remain there, and it may not be transferred out of the trust.
How Does an Irrevocable Trust Protect Your Assets?
Asset protection is the predominant reason why people set up irrevocable trusts. When an asset or a property transfers to your irrevocable trust, that asset or property is no longer legally yours. It belongs to the trust, so it is shielded from your creditors and from any judgments against you. Importantly, the assets held in the trust may not benefit you (though there are exceptions, such as the South Dakota trusts that our law office drafts for Minnesota clients). But they may be used to benefit a family member or other individual.
To increase that asset protection, you may also include in your irrevocable trust instructions to the trustee to cease, temporarily or permanently, the distribution of assets to a trust beneficiary if the beneficiary files a petition for bankruptcy or is named as a defendant in a lawsuit.
How Are Irrevocable Trusts Established?
In the State of Minnesota, you must take the following steps to set up an irrevocable trust:
- Decide who will act as the trustee of your irrevocable trust.
- Decide who your trust’s beneficiaries will be.
- Have a qualified Minneapolis estate planning attorney prepare your irrevocable trust.
- Decide which assets you will transfer into your irrevocable trust.
- Transfer those assets into the trust.
What is a Grantor? What is a Trustee?
The person who creates an irrevocable trust and moves the assets into it is called the “grantor.” To establish the irrevocable trust, a grantor must name a “trustee” who will administer the trust and one or more beneficiaries who will receive the trust’s assets after the grantor’s death.
Any adult may serve as your trustee, including your family members or close friends. You’ll want to choose someone who is honest, responsible, and has some financial knowledge and experience. You could also choose an independent, professional fiduciary to act as your trustee.
If you and your Minneapolis estate planning lawyer determine that an irrevocable trust is an estate planning option that is right for you, your lawyer can personalize an irrevocable trust that meets your specific needs, and that, if necessary, will be enforceable by a Minnesota court.
Once your irrevocable trust has been established, your next step will be deciding what assets should be transferred into the trust. For most grantors, some assets are better to move into an irrevocable trust than others, and some assets absolutely must not be moved to the trust.
How Should You Fund an Irrevocable Trust?
Although everyone’s circumstances are unique, generally speaking and in most cases, the assets that can safely be transferred into an irrevocable trust include real estate, life insurance, and cash, along with some of your stocks, bonds, and mutual funds that have already appreciated in value.
- Real estate: You likely would not transfer your personal residence into your irrevocable trust, because your Minnesota irrevocable trust was likely set up to benefit other family members. Your other real estate holdings are usually appropriate assets to transfer into your irrevocable trust, however.
- Life insurance: When a life insurance policy is transferred to an irrevocable trust, after the five-year look-back period, the policy’s cash value will no longer be counted by Medicaid. In some cases, that may allow the grantor to qualify for Medicaid benefits. If drafted property, the life insurance proceeds will be protected from estate taxes.
- Cash: There are no negative tax consequences for transferring cash into an irrevocable trust. It is always safe to transfer cash.
- Other assets: If you’ve accumulated considerable investments and savings, and if you want to protect some of those assets, transferring some of your stocks, bonds, and mutual funds into your irrevocable trust makes good sense.
Again, everyone’s situation is unique, but for most people, qualified annuities should not be transferred to an irrevocable trust. Qualified retirement plans may not be moved to an irrevocable trust because the transfer would in effect liquidate an account and make it taxable income.
What Else Do You Need to Know About Irrevocable Trusts?
The trustee will assume the responsibility for the administration of an irrevocable trust. It’s a daunting task, but by working with a Minneapolis trust attorney, a trustee can have sound legal advice for the administration of the trust whenever that advice is needed.
There are many different kinds of trusts for different kinds of situations. Revocable trusts work best for most individuals and families, while irrevocable trusts are more appropriate for others, and for some people, a last will and testament will be sufficient for their estate planning needs.
Do You Need a Comprehensive Estate Plan?
However, a will or a trust is only one part of the comprehensive estate plan you may need. Without the right estate plan, the taxing authorities or Minnesota probate court could end up with a considerable portion of your family’s assets after your death.
That is an important reason why you should ask a Minneapolis estate planning lawyer to discuss your trust and estate planning options. Your consultation with our client services director in Minneapolis is provided with no cost and without any obligation. The client services director can get some information from you, answer your general questions, give you an idea of the process and cover some possible cost options. If it makes sense, we’ll get you on the calendar with an estate planning attorney
After considering your goals and reviewing the details of your estate, an attorney can prepare an irrevocable trust – or set up a complete estate plan on your behalf – that will provide maximum legal protection to your assets and financial security to your loved ones now and for years to come.