A trust is a contract which provides a great deal of flexibility in managing your assets both during your lifetime and following death, all without Probate Court intervention. It is a complete substitute for a will.
Trusts are legal entities like a corporation, partnership or an individual. Trusts are ancient creatures and in Minnesota there are special laws that authorize them. They can go into effect now or they can go into effect at some time in the future. They may last many years or for only a short time. Trusts are usually drafted in a revocable format which provides the ability to alter the terms of the trust as times and circumstances change. The hallmark of a trust is its flexibility in planning and management. Virtually any situation or circumstance may be planned for. Instructions may be general in nature or extremely detailed and explicit.
All trusts require the following:
- A Grantor or someone to turn money or an asset over to the trust.
- A Trustee to manage and be accountable for the money or asset.
- A Beneficiary, for whom the Trustee manages the money or asset.
When an individual wishes to set up a trust, a trust agreement is drafted which sets forth the terms and conditions under which the trustee accepts the assets from the grantor and sets out the rights of the beneficiary. A trust may be established by lifetime agreement “Living Trust” or in a will “Testamentary Trust.” Trusts may be revocable, allowing changes to easily be made, or irrevocable, which may not be changed. The trustee is given directions as to how to manage the assets for the beneficiary and when and on what terms to release part or all of the assets. These directions may be general, allowing the trustee to exercise its discretion or the directions may be very specific and detailed. Trustees must follow the Grantor’s directions. If the trustee takes money or assets intended for a beneficiary, the trustee is subject to civil and criminal penalties. Trustees (other than persons who turn money or assets over to trust) keep records and prepare annual accounts to detail their receipts and expenditures. When the purpose of the trust is finally accomplished, the trust assets are distributed and the trustee will terminate the trust.
There are many purposes for which trusts are set up.
- Income and death tax savings.
- General asset management, where an individual or husband’s and wife’s assets are managed while they are alive, give directions on how to manage assets in the event of mental incapacity and give directions on how to manage and distribute assets upon the individuals death or second to die of husband and wife.
- As a complete substitute for a Will.
- To provide money for “Special Needs” and “Supplemental Needs” for the physically or mentally incapacitated.
- Philanthropic purposes. Charitable trusts may allow the Grantor to retain the income from a trust or an annuity while obtaining current tax advantages for giving what is left to charity.
- Funerals and Burials.
- Care of Pet Animals.
For most individuals the important estate planning Trust is the General Asset Management Revocable Living Trust. This trust is incredibly useful when properly drafted. It provides an all purpose money and asset management trust that allows the individual or husband and wife to fully control the trust in all respects until he/she/they become incapacitated or deceased at which point a successor steps in to manage assets during any period of incapacity and distribute money or assets following death.