WILLS & TRUSTS
Minnesota Estate Planning Lawyers
The greatest mistake when it comes to putting the proper documents in place to pass your property and assets is the failure to plan. Nearly 70% of all adults in the United States do not have a Will or Trust. Sometimes failing to plan is due to a feeling you are too young, a feeling of immortality or the fear of death. It is alarming to see how many obituaries there are for people in their 30’s, 40’s and 50’s. In other instances, people look at the planning process as overwhelming. Still in other cases, people unable to decide who should administer their assets after their death. The problem is that without a plan in place, your loved ones are left in the dark.
In our experience, even in families that are extremely close, death can negatively change the relationship between family members. Unspoken conflict between family members begins to boil to the surface. Memories of what “mom and dad wanted each to have” differ between each child resulting in resentment and long-lasting hostility between family members.
Furthermore, failing to plan results in the State of Minnesota and not you determining how your assets and property will be distributed. Minnesota will also determine who will act as the individual responsible to oversee the distribution or your assets.
Probate & Non-Probate Assets
A common misconception is that probate applies to all of the assets you leave when you die. However, probate handles only your probate assets.
With that said, we must first understand what a probate asset is and what a non-probate asset is. In a general sense, probate assets are those assets owned by you alone at the time of your death. Probate assets include those assets without any beneficiary designations. Non-probate assets are those assets that are owned jointly with others or have a beneficiary designation on them. Non-probate assets are passed automatically upon your death to those named as beneficiaries or those who you jointly own the assets with.
A good example of a non-probate asset is life insurance. Most life insurance policies name a specific beneficiary who is to receive the life insurance proceeds upon your death. However, if the life insurance policy does not contain a named beneficiary, the life insurance policy will be deemed to be a probate asset.
A typical probate asset is a parcel of real estate that is owned by only a single person. In such a case, the real estate must pass through probate in order to be distributed to your heirs.
Why is it important to understand the difference between probate and non-probate assets?
Not recognizing this important distinction could result in an unintended distribution. We have seen many cases where an individual’s Last Will & Testament states that the assets should be distributed to one person, but a beneficiary designation on the asset says something completely different. In this case, the beneficiary designation trumps the individual’s Will. Bottom line, this means that your Will has absolutely no effect on the distribution of non-probate assets.
What Is A Trust & Why Do I Need One?
A Trust is a written agreement that sets up specific rules about how property and assets that have been transferred into the Trust are to be administered and distributed. There are basically two types of Trusts that are relevant to families with minor children: (1) a living trust; and (2) a testamentary trust.
A living trust is created and funded while you are alive. When created, a living trust can be revocable or irrevocable. However, in most cases, in order to allow you to properly manage your property and assets held by the Trust, we suggest that the living trust you create be revocable. This allows you to change the trust, add to the trust, take assets from the trust or terminate the trust anytime you want. An irrevocable trust does not allow you this flexibility.
Why Establish a Living Trust?
1. Avoid Probate. Because your living trust is a private contract between you (as the person creating the trust) and the trustee (the person administering the trust) any assets titled in the name of your trust at the time of your death will avoid probate.
2. Accelerate Distributions to your Beneficiaries. Because your living trust is not required to proceed through the tedious court process of probate, your assets and property are able to be disbursed to your beneficiaries almost immediately if necessary.
3. Keep your Estate Plan Private. Unless your beneficiaries and successor trustee gets into a dispute requiring judicial intervention, your living trust will not be filed with the court because the assets and property titled in your living trust pass without the need to be probated. In contrast, if you just have a will, your will must be filed with the court and probated in order to pass your property and assets to your beneficiaries
4. Cost Savings to your Beneficiaries. Typically the cost to administer your living trust is significantly less than the cost to administer your will through the court probate process.
5. Planning for Disability or Incapacity. If you should become incapacitated or incompetent, a living trust will avoid the need for the establishment of a conservatorship. A conservatorship is a court proceeding brought for purposes of managing your financial affairs if you are unable to do so. Through your living trust, you can specify how your mental incapacity should be determined, like by a letter from your treating physician.
Conversely, a testamentary trust is established through your will or trust with provisions to be carried out after your death. In most cases, unless you establish a testamentary trust to manage the shares of any beneficiary who is a minor, the courts will require that a conservatorship is established to administer your minor beneficiaries’ share of your estate. Not only is this an additional cost that is assessed against your minor beneficiaries’ share of their estate, but your minor beneficiaries will automatically receive their share of your estate when they turn 18. You need to carefully assess your beneficiaries’ financial maturity, whether or not they are minors, to determine their ability to manage their financial affairs. In most cases, including a testamentary trust in your will or living trust, it is necessary to be sure your values, as it pertains to the disbursement of your estate to your beneficiaries, are achieved.
Through the establishment of a testamentary trust, you are able to make discretionary or non-discretionary disbursements. Discretionary disbursements include those disbursements over which you want your trustee to have the discretion to make. For example, you may want to allow your trustee to make disbursements to your beneficiaries for such things as educational expenses, purchasing a house or starting a new business. A testamentary trust can be customized to allow for such discretionary disbursements by your trustee including limiting how the disbursements can be used as well as the amount that can be disbursed.
Non-discretionary disbursements include those disbursements which are able to compel through the provisions of your trust. An example of a non-discretionary distribution provision includes a mandatory distribution to your beneficiaries when they attain a specific age or withholding distributions to your beneficiaries if they are engaged in some activity for which you are opposed.