Trusts are one of the most versatile estate planning tools available to Minnesota residents. Whether you want to avoid probate, protect assets or provide for a loved one with special needs, the right trust structure can accomplish your goals.
A trust is a legal arrangement where one person (the grantor or settlor) transfers assets to another person or entity (the trustee) to hold and manage for the benefit of designated beneficiaries. Unlike a will, which only takes effect after death, many trusts operate during your lifetime and continue smooth after you pass away.
Minnesota trusts are governed by the Minnesota Trust Code under Minn. Stat. Chapter 501C. This comprehensive statute covers trust creation, modification, administration and termination. Understanding how trusts work under Minnesota law is essential for anyone considering this estate planning tool.
A revocable living trust is the most common type of trust used in estate planning. You create the trust during your lifetime, transfer assets into it and typically serve as your own trustee. You maintain full control over the trust assets and can modify or revoke the trust at any time.
When you pass away, the successor trustee you named takes over and distributes assets according to your instructions. Because the assets are already in the trust, they bypass probate entirely. In Minnesota, where probate can take 6 to 18 months and cost 2% to 4% of the estate value, this savings can be significant.
A revocable living trust is particularly valuable if you own real estate in multiple states. Without a trust, your family would need to open a separate probate proceeding in each state where you own property. A trust eliminates this multi-state probate problem completely.
One critical step that many people overlook is funding the trust. Creating the trust document is only half the process. You must actually transfer assets into the trust by changing titles, deeds and beneficiary designations. An unfunded trust provides no probate avoidance benefit.
An irrevocable trust cannot be modified or revoked once created (with limited exceptions under Minn. Stat. 501C.0411). When you transfer assets into an irrevocable trust, you give up ownership and control of those assets. This may sound unappealing, but irrevocable trusts offer powerful benefits that revocable trusts cannot provide.
Because you no longer own the assets, they are generally protected from your creditors, lawsuits and nursing home costs. Irrevocable trusts are a cornerstone of Medicaid planning because assets transferred to the trust more than five years before applying for Medical Assistance are not counted as available resources.
Irrevocable trusts also remove assets from your taxable estate. For individuals with estates exceeding Minnesota’s $3 million estate tax threshold, an irrevocable trust can save hundreds of thousands of dollars in estate taxes.
Common types of irrevocable trusts include irrevocable life insurance trusts (ILITs), charitable remainder trusts, qualified personal residence trusts (QPRTs) and special needs trusts.
A special needs trust (also called a supplemental needs trust) allows you to provide for a loved one with a disability without disqualifying them from means-tested government benefits like Supplemental Security Income (SSI) and Medical Assistance.
Under Minnesota law, a properly drafted special needs trust supplements rather than replaces government benefits. The trust can pay for things that government programs do not cover such as recreation, travel, personal care items, education and specialized therapy.
There are two main types: first-party special needs trusts (funded with the disabled person’s own assets, such as an inheritance or personal injury settlement) and third-party special needs trusts (funded by family members or others). Each type has different rules regarding creation, administration and what happens to remaining assets when the beneficiary dies.
If you have a family member with special needs, proper trust planning is essential. A direct inheritance or gift could disqualify them from benefits they depend on for housing, medical care and daily living expenses.
A testamentary trust is created through your will and only comes into existence after your death. Unlike a living trust, a testamentary trust does not avoid probate because it is established through the probate process.
Testamentary trusts are commonly used to manage assets for minor children. Rather than leaving a large inheritance outright to a child, you can direct that the assets be held in trust until the child reaches a specified age such as 25 or 30.
You can also use a testamentary trust to provide for a surviving spouse while ensuring that remaining assets eventually pass to your children from a prior relationship. This is particularly useful in blended family situations.
Many people ask whether they need a trust or a will. The answer for most families is both. A will handles matters that a trust cannot, such as naming a guardian for minor children. A trust handles asset distribution more efficiently than a will.
You generally benefit from a trust if you own real estate, have assets exceeding $75,000 (the Minnesota small estate threshold), want to avoid probate, need to plan for incapacity, have a blended family or have a beneficiary with special needs.
A will alone may be sufficient if you have a simple estate, limited assets and no concerns about probate timing or costs. However, even people with modest estates often benefit from a trust because of the incapacity planning advantages.
At Birkholz Law, we evaluate your specific situation and recommend the combination of documents that best achieves your goals. We never push unnecessary complexity.
Creating a trust document without transferring assets into it is like buying a safe and leaving it empty. The trust only controls assets that have been properly funded. This is the most common estate planning mistake we see at our Mankato office.
Funding a trust involves retitling assets in the name of the trust. Real estate requires a new deed. Bank and investment accounts require new account titling or beneficiary designations. Life insurance and retirement accounts may need beneficiary designation changes.
For real estate, Minnesota requires recording a new deed transferring the property from your individual name to the trust. We handle this process for our clients to ensure it is done correctly. An improperly drafted deed can create title issues that are expensive to fix later.
We provide a comprehensive funding guide to every client who creates a trust and assist with the retitling process to ensure nothing falls through the cracks.
When a trust creator passes away, the successor trustee must administer the trust according to its terms and Minnesota law. Trust administration involves gathering assets, paying debts and taxes, maintaining records and distributing assets to beneficiaries.
Under Minn. Stat. 501C.0813, a trustee has a duty to keep qualified beneficiaries reasonably informed about trust administration. The trustee must provide an annual accounting and respond to beneficiary requests for information.
Trustees also have fiduciary duties including the duty of loyalty (acting in beneficiaries’ best interests), the duty of impartiality (treating beneficiaries fairly) and the duty of prudent administration (managing trust assets carefully).
If you have been named as a successor trustee, we can guide you through the administration process. If you are a beneficiary with concerns about how a trust is being managed, we can advise you on your rights under Minnesota law.
The most frequent trust mistakes we encounter include failing to fund the trust after creation, using generic online trust templates that do not comply with Minnesota law, naming the wrong trustee, failing to update the trust after major life changes and creating a trust when simpler alternatives would work.
Another common mistake is creating a revocable trust solely for Medicaid planning purposes. A revocable trust does not protect assets from nursing home costs because you retain control over the assets. Only an irrevocable trust provides Medicaid asset protection and it must be created at least five years before you need Medical Assistance.
We also see families who create trusts but fail to coordinate them with beneficiary designations on retirement accounts and life insurance policies. These assets pass by beneficiary designation regardless of what your trust says, so coordination is essential.
Our Mankato attorneys have helped hundreds of Southern Minnesota families create trusts for your their specific needs. We take the time to understand your goals, explain your options in plain language and recommend the trust structure that makes the most sense for your situation.
We handle every aspect of trust creation from the initial consultation through document drafting, signing and asset funding. We do not consider our job done until your trust is properly funded and operational.
Whether you need a simple revocable living trust, a complex irrevocable trust for tax or Medicaid planning or a special needs trust for a loved one with a disability, our team has the experience to get it right. Contact us at (507) 387-2100 to discuss your case.
A: Trust costs vary based on complexity. A basic revocable living trust package typically ranges from $1,500 to $3,000 and includes the trust document, pour-over will, power of attorney, health care directive and initial funding assistance. More complex trusts such as irrevocable trusts or special needs trusts may cost more.
A: Yes. Most people who create revocable living trusts serve as their own trustee during their lifetime. You maintain full control over the assets. You name a successor trustee to take over if you become incapacitated or pass away.
A: Yes. You need a pour-over will that catches any assets not transferred to the trust during your lifetime and directs them into the trust. You also need a will to name a guardian for minor children.
A: It depends on the type of trust. Creditors can generally reach assets in a revocable trust because you retain control. Assets in a properly structured irrevocable trust are generally protected from creditors.
A: At Birkholz Law, we typically complete a trust package within two to three weeks from the initial consultation. This includes drafting, review, signing and initial funding assistance.
Our estate planning attorneys can help you create a comprehensive
plan that protects your assets and provides for your loved ones.
Contact us at (507) 387-2100 to discuss your case.
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121 St. Andrews Court Mankato, MN 56001
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