Many Minnesota residents are unaware of the importance a trust fund can play in getting assets to their loved ones without excessive costs. A trust fund can help beneficiaries avoid having their assets distributed under court supervision, which is a lengthy and costly process known as probate.
Estate planning is also beneficial to individuals who want to avoid having estate taxes levied on their children. Not all trusts are exempt from estate taxes. Revocable trusts, which can be modified within a person’s lifetime to include additional assets or beneficiaries, are subject to estate taxes, which are due nine months after the person who created the trust (the “grantor”) passes away. With a revocable trust, then, there is a risk that beneficiaries will owe taxes before they even have access to the assets in a trust.
Irrevocable trusts are less flexible in that they cannot be changed in any way after they are created. The benefit of irrevocable trusts is that they are not subject to estate taxes for the first $11.58 million per person. Taxes for an irrevocable trust can be paid by beneficiaries on interest or income distributed during the guarantor’s lifetime (which is required with a simple trust and optional with a complex trust), or they can be paid by the guarantor if he or she retains the interest and income.
Estate planning is not only for the wealthy. Anyone can work with an attorney to create a plan to ensure that assets are distributed in a way that he or she wants. Individuals should update their estate plans whenever they have major life changes, such as the birth of another child who needs to be added to a trust.
