What are the Top benefits of Trusts versus just using a Will?
A Will is a good, and necessary, starting point for any Estate Plan. But there are many scenarios today that a Will ALONE simply cannot address. Adding a Trust, or combination of Trusts, to your Minnesota Estate Plan can ensure your assets get to whom you want, when you want, the way you want, with the least amount of taxes and legal fees, and without hassle.
Most people are aware that Trusts exists to tackle different Estate Planning situations, but many don’t really know what Trust benefits really are (many think Trusts are just for creating spoiled Trust Fund kids – but as you will read, that is far from the truth; nearly EVERYONE has an advantage to gain from using Trust benefits). However, when doing even a little Googling about Trusts, you will quickly find that there are many different Trusts for many different situations – so many different Trusts exist that you may not even know where to start. That is precisely why I have written this article: to point out that there are certain important benefits common to all Trusts – basically, to provide a starting point.
Understanding these Top 14 Benefits of Trusts You NEED to Know! will help guide you to what type of Trust(s) you may ultimately need to protect your assets. To clarify, this article is not meant to literally guide you to the exact Trust(s) that will be most beneficial to your Estate Plan – it will take more than a simple blog post to accomplish that. Rather, it is meant to point out common issues behind Estate Planning, and why smart Estate Planners use Trust benefits to protect their estate.
Many people don’t think of these issues until they are pointed out. But, once you identify which issues are most important to you and your family, we can the work together to assemble a Comprehensive Minnesota Estate Plan which specifically addresses those issues by providing Trust benefits that best protect all of your assets and care for your loved ones.
Please note that when if comes time to select the specific Trust(s) for your Estate Plan, each type of Trust (whether Revocable or Irrevocable) will have its own additional specific benefits to deal with your unique situation – beyond what you will find in the following list. And now, without further ado:
Top 14 Benefits of Trusts You NEED to Know!:
Top Trust Benefit #1:
THIS IS THE #1 REASON PEOPLE CHOOSE TRUSTS AS PART OF THEIR ESTATE PLAN! If you only use a Will for your Estate Plan, then it is likely that your estate will be required to go through the court process known as Probate. For example, Probate is mandatory in Minnesota for an Estate that only used a Will and the deceased owned, or owned an interest in, any real estate in Minnesota OR had personal property in excess of $75,000 – regardless if whether or not they owned real estate in Minnesota.
Probate can be a time-consuming and expensive process. Most people don’t know what the Probate process involves – so what do they do? Hire a Probate Lawyer…usually at a starting rate in Minnesota of about $225-250/hour (you should also know that this rate is charged regardless if it is the attorney or an assistant who is doing the work because as long as the work is eventually reviewed by the attorney – even if just for a couple minutes, the same rate can be charged for the entire time it took to complete the work).
And please note that the Probate Lawyer’s job is not to fully educate your beneficiaries on all aspects of the Minnesota Probate process – their job is to properly complete the Probate process established by Minnesota law (though they should make sure your beneficiaries have a general understanding of what is happening). So your beneficiaries may feel confused and unsure during the lengthy Probate process.
Furthermore, you should know that many attorneys who advertise as an Estate Planning Attorney don’t primarily practice Probate or Estate Planning law. Many just tack it on to the end of the list of their primary practice areas. Why? The simple answer is that Probate and Estate Planning just isn’t that lucrative in the now. They may collect a preparation fee now, but then there is no more money to be gained likely until many years later – if at all (depends on if the client chooses the same Probate Attorney for their Executor or Trustee Services). So many attorneys just tack “Probate and Estate Planning” onto their list practice areas to offer additional services to their existing clients from their more lucrative practice areas.
Another issue to think about to think about when hiring an attorney whose primary practice is not Estate Planning is: what if there is a problem with the Will, Trust and/or Estate Plan? For example, if the Estate Planning Lawyer creates a Will, Trust and/or Estate Plan today and there is a defect in any of it, when will anyone likely discover that defect…? The answer is likely years from now – very possibly a decade or more. Likely meaning significant hardship on anyone seeking accountability for the defect.
How will you know if Estate Planning is part of the attorney’s primary practice before you meet them? Easy. Go to a prospective attorney’s website and look at their “Practice Areas”. Does it look like they primarily practice in Probate and/or Estate Planning – or does it look like they just tacked it on to their list of practice areas? If it is a multi-attorney practice, find their firm’s Profile page. Do they have an attorney dedicated to Estate Planning? It is usually pretty easy to spot.
That is not to say that most Estate Planning attorneys are not professional, competent or knowledgeable about their practice areas – because many are. I’m just pointing out that the Probate process isn’t something most people look forward to going through. And there are a myriad of challenges that can present themselves anywhere in the process – and I’m not saying they will, only that there is a potential. Furthermore, most would advise that avoiding Probate is the best overall option.
Beside the considerable amount of time and money that will be lost in the Probate process, and the other potential problems that may exist, there are still more issues your estate may face if required to go through Probate. Including a loss of confidentiality and the ease of which a Will may be challenged (more on both of these issues further down the list). Additionally, Minnesota requires a four-month notice period for creditors to make claims against the estate – causing a lengthy delay in the disbursement of major assets. And even after final disbursement of estate assets has been proposed, they still will need to be reviewed by the Probate court.
What is the point I’m trying to make here? Simply put: all assets placed in a properly created Trust are exempt from the Probate process.
Trusts offer full Probate Avoidance. This means that none of what I just explained can happen to you or your estate (other than any potential problem with hiring an Estate Planning Attorney who doesn’t actually primarily practice in Estate Planning).
Top Trust Benefit #2:
ANCILLARY PROBATE AVOIDANCE
“Ancillary Probate” is a second Probate proceeding that is required if the decedent also owed, or owned and interest in, real estate in a state other than Minnesota that was not placed into a properly drafted Trust. The Ancillary Probate proceeding will take place in the State where the additional real estate was located. That means two sets of court costs and likely two sets of attorney fees. Therefore, if you own, or have an interest in, real estate in a State other than Minnesota and you only use a Will for your Estate Plan, that out-of-state real estate will be required to go through that State’s probate process. That means your estate will go through the Probate process twice – once for your Minnesota property and assets, and again for the real estate you own in the other State(s).
Placing out-of-state real estate in a properly drafted Trust has the benefit of avoiding Ancillary Probate. The title of your out-of-state property will simply be transferred in accordance with the instruction within your Trust – saving considerable time, money and hassle. An important Trust benefit to consider if you own, or own an interest in, any real estate outside of Minnesota.
Top Trust Benefit #3:
TRUSTS ALLOW FOR THE IMMEDIATE TRANSFER OF YOUR ASSETS
Trusts streamline the entire property transfer process. If your Trust states that the Trustee shall transfer your assets immediately upon your passing, then the transfer of your assets can be completed immediately. And by “immediately”, I mean as soon as is prudent for the Trustee – unlike the lengthy wait that will be required if Probate is necessary. (Please note that liquid assets, such as cash, should be able to be immediately transferred, but other assets such as real estate, stocks and bonds, etc. may take processing time that is outside the control of the Trustee).
By contrast, if you have a Will that must go through Probate, all assets gifted by that Will should only be transferred after several Probate processes have been fully completed – unless permission is given by the Probate court. For example, in Minnesota, major assets should be distributed to beneficiaries only after the 4-month creditor notice period has expired (even if you are sure there are no outstanding creditors). And all transfers under a probated Will still have to be reviewed and given final approval by the Probate court – which will be months, and in rare instances, years, after your passing. And if the Probate court decides the assets should not have been transferred prematurely, the recipient of those assets will have to return them to the estate or face consequences to be defined by the Probate court. Also, keep in mind that there can also be significant fees involved with securing and maintaining your assets during the period your assets are awaiting transfer.
So you can see that the entire waiting process can be avoided by using Trust benefits for transferring your assets. Most transfers can be complete in days or weeks rather than months or years – saving time and money. Not only is the waiting process reduced or eliminated, but you will also remove government involvement (i.e. the Probate court) from the inner-workings of your estate. This greatly increases privacy while greatly reducing the cost to your estate.
Top Trust Benefit #4:
UNMATCHED FLEXIBILITY AND OPTIONS
Trusts offer unmatched flexibility by allowing a virtually unlimited number of options to give specific instructions about who will receive which assets, when they will receive them and under what conditions.
In contrast, if you only use a Will, your adult beneficiaries will receive 100% ownership of your gift immediately, and minors will receive 100% upon their 18th birthday (and it should be noted that most people are not comfortable giving even their most responsible child an unsupervised lump sum of cash as that age).
Your options for changing those circumstances are are very limited when only using a Will.
You can design your Trust(s) to simply transfer your assets to designated beneficiaries immediately, but you can also delay any asset transfers if you wish. For example, you can delay the transfer for a specific amount of time – days, months, years or even possibly generations.
You could also delay the transfer of asset until certain events or conditions are met. Such as “Junior will receive 25% his share of my estate upon his 18th birthday, 25% upon reaching age 25 and the balance upon reaching age 30.”
Furthermore you can use a Trust assets as incentives, such as “Jane shall immediately receive 50% of her share of my estate, and the remainder at the successful completion of a bachelor’s degree. If no such bachelor’s degree is attained by age 35, then the balance will go to Junior.”
You can use Trust benefits to accomplish virtually anything you desire – it is totally up to you. You can just give your assets as gifts, or use them to teach others the value of financial responsibility.
Top Trust Benefit #5:
PREVENT YOUR LIFE’S WORK FROM BEING WASTED, MISMANAGED OR LOST DUE TO POOR DECISION-MAKING – OR JUST PLAIN BAD LUCK – OF YOUR BENEFICIARIES
You are free to place any conditions on the disbursement of assets within the Trust. This flexibility allows you to account for any circumstance you think may affect any of your beneficiaries. This is an important Trust benefit if any of your beneficiaries happens to be one of the millions of people today struggling with addiction in any form.
But it isn’t only addicts who make bad financial decisions. Even the most well intended business ventures can end in failure and a great deal of financial loss. And don’t underestimate the poor decision-making that can accompany the change in a personal relationship.
Placing your assets in a Trust will provide the Trust benefit of ensuring your gift survives the good times and the bad. You worked hard to earn and save up your assets, protect them by protecting your beneficiaries from themselves.
Top Trust Benefit #6:
THE DURATION OF A TRUST CAN BE AS SHORT AS ONE DAY, AS LONG AS FOREVER – OR ANY LENGTH OF TIME IN-BETWEEN
The timing of asset distribution using only a Will is set by the rigid Probate process. The goal of the Probate process is pay all the estate’s debts, distribute all excess assets and close the estate in a timely manner. In contrast, the duration of a Trust will depend on what type of Trust(s) are selected, what assets are placed in it/them and what instructions are given related to disbursements. If the Trust is designed to simply to transfer named assets to named beneficiaries, a Trust can be settled, the assets transferred and the Trust quickly closed. If the Trust was designed to provide periodic payouts, or to provide for a surviving spouse for their lifetime, then the Trust will last a lot longer. If you design a Dynasty Trust, your Trust will last at least into the next generation – maybe longer. The variety of Trust benefits combined with people’s unique situations makes the number of beneficial options a Trust may potentially have virtually limitless.
Top Trust Benefit #7:
A TRUST WILL PROTECT THE ASSETS FROM CLAIMS BY YOUR BENEFICIARY’S CREDITORS AND/OR FUTURE EX-SPOUSES
When you give someone assets by way of a Will, that beneficiary become the owner of that asset immediately. If they own the asset, it is vulnerable to claims by creditors and future divorce proceedings.
However, if you put those same assets in to a Trust with someone else as Trustee, then it is the Trust who owns those assets – not your beneficiary.
Therefore, all assets within the Trust will NOT be available assets vulnerable to claims by creditors or future ex-spouses – therefore, those assets will be protected.
Top Trust Benefit #8:
A TRUST WILL PROTECT YOUR CHILDREN’S INHERITANCE IN THE EVENT OF YOUR SURVIVING SPOUSE’S REMARRIAGE
Most couples use a Will to leave everything to their surviving spouse, who then should be leaving everything to your children upon his/her passing (often referred to as a “Sweetheart Will”). However, this often is not the actual outcome… When you give someone anything via a Will, it is theirs – 100%, immediately. In other words, they immediately own the gift. This makes that gift vulnerable not only to claims by creditors, but also to any claims by future spouses in case of your surviving spouse’s remarriage. Therefore, the asset(s) you wish to pass to your children may already be diminished or gone before the passing of your surviving spouse.
It is undeniable that people are living longer and longer these days. You should consider that even with the happiest of marriages it is not unreasonable to think your surviving spouse may at some point find new companionship in the years after your passing. Assets, priorities and points of view change over time. So you will want to head-off any scenarios that may allow the accidental, or intentional, disinheritance of your children (especially if they are from a prior relationship).
An example of when such a disinheritance can occur is if your surviving spouse passes away before their new spouse. A person cannot disinherit their spouse in Minnesota. So if your surviving spouse was the first to pass in their new marriage, their new spouse would be entitled to a portion of the marital assets (regardless of your intentions or the contents of any previous Will). Also, if your surviving spouse were to remarry, it is reasonable to assume that he/she would create a new Will which would include their new spouse.
And since approximately 50% of all marriages in the U.S. end in divorce, I’m sure you want to prevent of the loss of your assets to the new spouse should that marriage end in divorce!
By placing asset in a Trust, your surviving spouse will not actually own the Trust assets. The Trust will own those assets. This adds the Trust benefits of shielding those assets from any claims of a future spouse and ensuring they end up where you intended them to!
Top Trust Benefit #9:
PROTECT YOUR SURVIVING SPOUSE – AND/OR YOUR OTHER BENEFICIARIES – FROM PREDATORS, UNDUE PRESSURE AND COERCION
Your spouse can become vulnerable, and therefore a target, to others after people know you are gone. Your assets will be public record if any of them pass via the Probate process – meaning anyone can find out exactly who received what asset(s). However, if your assets are placed into a Trust, others won’t know what your assets are or who received them. Therefore, they won’t be able to use any tactics to borrow, spend or otherwise deplete those assets.
If undue pressure on any of your beneficiaries is of any concern to you – whether it be from overbearing family members, convincing – or even threatening – family members or acquaintances with addiction issues, or a beneficiary with Special Needs, having a third-party as a Trustee will ensure that beneficiary is not the actual owner of those assets and therefore will have no say on how those assets are used outside of the terms of the Trust. This will put your surviving spouse or beneficiary in a position of control rather than in a position vulnerability.
For example, if someone tries to “borrow” money from your surviving spouse, they can simply say, “I’m sorry, but I have no control over the money in the Trust. Only my Trustee can approve such a loan.” Which we know your Trustee will not do – per the terms of the Trust! This can greatly reduce the stress on your surviving spouse and/or beneficiary helping ensure he/she will have full access to the assets for the maximum about of time – just as you intended. The importance of this Trust benefit should not be underestimated!
Top Trust Benefit #10:
YOUR SPECIAL NEEDS BENEFICIARY CAN RECEIVE AN INHERITANCE WITHOUT THE RISK OF LOSING ANY OF THEIR GOVERNMENT BENEFITS/ASSISTANCE
As the father of a child with Special Needs, I know first-hand the challenges of remaining in compliance with strict means-tested government assistance programs. Such programs allow the recipient of such assistance to own very few assets. Therefore, even a modest well-intended gift can result in your Special Needs beneficiary losing their much needed assistance!
However, by placing your gift into a Trust (such as an Irrevocable “Special Needs Trust”), your beneficiary WILL still benefit from all the asset within the Trust, yet will NOT actually “own” the assets. This means those assets are essentially invisible to any government program – ensuring they CANNOT be used against your Special Needs beneficiary by way of means-testing.
Using a Trust is really the only way to effectively give any gift of value to a recipient of government assistance without compromising their eligibility for such assistance.
Top Trust Benefit #11:
KEEP ASSETS IN THE FAMILY/BLOODLINE
You can ensure assets are kept in your family by adding such provisions as restricting their sale or dictating who they may be passed to in the future. This Trust benefit will thereby ensure YOUR decedents will be able to use and enjoy them for generations to come (for example: hunting/recreational property, your coveted firearms collection, jewelry, antiques, collectors’ items or artwork, etc.).
As stated above, by simply giving the asset(s) directly through a Will, it could be your beneficiary’s future ex-in-laws who are enjoying your assets when your beneficiary potentially loses the asset(s) in a divorce! Additionally, as stated previously, giving assets directly by way of a Will leaves those assets vulnerable to claims by creditors.
Placing the same items in a Trust can protect those assets and keep them in your family by directing what can be done with them, who can use them, and who they will pass to – all while protecting them from future claims of creditors and/or future spouses of your beneficiaries. Such results cannot be accomplished using a Will alone.
Top Trust Benefit #12:
TRUSTS ARE MUCH MORE DIFFICULT TO CHALLENGE THAN A WILL
This Trust benefit specifically refers to a situations where anyone may not be happy about your distribution choices and is thinking of bringing into question your competency and/or if you were influenced in your decision-making during the creation of your Will or Trust. If you have any reason to think someone may not be happy with how you plan to disburse your assets, you NEED to consider the following three(3) factors – at least – when deciding whether to use a Will or a Trust for your asset distribution:
- The validity of a Will is judged using the lowest standard in the legal field. For example, for a Will to be valid you only need to show 3 things were true at the time the Will was signed: 1) that the signer knew they were creating a Will, 2) they knew what their property is, and 3) and they knew who their potential beneficiaries are. As you can see, there are no real checks built into the Will creation process that does anything to confirm your mental capacity or check for undue influence.
- Creating a Trust is much more complicated and involved process – therefore it creates a higher legal standard. When creating a Trust you will likely be in communication with an attorney, banking officials, notaries, and other professionals over a period of days, or even weeks. These professionals all have a duty of professional responsibility that will not allow them to complete your transaction if they believe you are not competent to make the relevant decisions or are being unduly influenced. By necessitating the use of multiple professionals over time to complete your Trust, any challenges to competency or undue influence are much more difficult to prove.
- The burden of proof is different for challenging a Will versus challenging a Trust. If someone chooses to challenge a Will, the burden is on the Estate to prove that the Will is valid. However, if someone chooses to challenge a Trust, the burden is on the challenger to prove the Trust is not valid. So you can see that a Will is easier to create, but it is also easier to challenge.
Top Trust Benefit #13:
REDUCE, POSTPONE AND/OR ELIMINATE STATE AND FEDERAL ESTATE TAXES
Minnesota does NOT have an Inheritance Tax. However, Minnesota DOES have an Estate Tax. If your estate is large enough to potentially subject it state or federal taxes (starting around the $1.5 million+ range), you definitely need to consider placing assets into a Trust to reduce, postpone, or potentially eliminate your tax liabilities. Some Trusts can defer taxes, some can remove assets from your estate – making them not taxable to your estate.
DISCLAIMER: I AM NOT A TAX EXPERT, but we can consult with those who are to ensure we do everything possible to make sure your assets pass to your intended beneficiaries – not to the government.
Top Trust Benefit #14:
As briefly addressed above, Probate records such as proceedings, the contents of your Will, your liabilities, the inventory of your asset and the identities of your beneficiaries and whay they received are a matter of public record.
With proper Trust planning, Probate will be completely avoided, so there will be no such public records created.
The contents of your estate, your assets and liabilities, the identities of your beneficiaries, and the details regarding the final disbursement of your estate will all be kept private – as it should be.
Now you should see that Trusts are powerful tools. Trust benefits allow flexibility and control over your assets while streamlining the final management of your Estate – something your family and loved ones will truly appreciate and remember.
There can be no fighting over who should get what. There will be no stress on your loved ones due to them trying to guess what decisions you would make or approve of. Everyone will get what you want, when you want, in the shortest amount of time, with the lowest possible legal fees and with the least amount of hassle. And it all will be thanks to the thoughtful, smart and careful planning you used when choosing to use Trust benefits as part of your Estate Plan which made all the hard decisions for them! THAT is a Legacy you can be proud of!
Lastly, it should be noted that when you use Trust benefits as part of your Minnesota Estate Plan, you will also still have an accompanying Will. The accompanying Will has a name, it is known as a “Pour-over Will”. However, instead of a directing which beneficiaries get what property – as a typical Will does, a Pour-over Will simply directs that any assets not already in your Trust(s) should now be gathered and “poured” into your Trust(s) – so they then can be distributed via the terms of your Trust(s).
A Will is an important and necessary part of any Estate Plan, BUT a Will alone just doesn’t provide anyof the benefits just discussed. As you can see, Trust have many benefits beyond creating spoiled Trust Fund kids. In fact, I am confident you found at least one benefit in this list that would directly apply to even your unique situation.
If you found this list helpful and want to learn about the benefits of an irrevocable Medicaid Asset Protection Trust, then check out this article: Irrevocable Medicaid Asset Protection Trust – An Overview
Revocable and Irrevocable Trusts: Piloting the Maelstrom with a Steady Hand - Michael Markhoff (Danziger & Markhoff)
Estate Planning Through an Asset Protection Lens - Gideon Rothschild, J.D., CPA
An Associate’s Guide to Estate Planning - Jill Miller & Associates, P.C.
A Comprehensive Overview of Trusts - Dr. Bart A. Basi
A Matter Of Trust - Peggy Hoyt