What Types of Trusts Can Be Created in Minnesota?

In addition to having a Will drafted, many Minnesota residents ask to have trust accounts created for them due to their frequent estate planning advantages. However, determining which types of trusts will best meet your needs can be a slightly complicated task.

Be sure to ask your Minnesota estate planning attorney to look over your portfolio of assets and review your family’s current and future financial needs. Once that’s been done, he can tell you which types of trust accounts should prove most useful to you.

Here’s some brief information about the types of trusts you can set up in this state.

Different Types of Trusts Used by Minnesota Residents

A Living Trust. (Lawyers sometimes call this as an inter vivos trust). This type of trust is created while you’re still alive – as opposed to one that comes into being (under your Will) once you’ve passed away. Although this type of trust often involves a trustee managing its contents on behalf of others – you have the option of naming yourself as trustee, grantor, and beneficiary during your lifetime.

As is true regarding most trusts, it may not be worth creating one unless you have a fairly sizeable estate. Living trusts can be set up as either revocable or irrevocable;

A “Bypass Trust” also known as a “Family Trust” or “Credit Shelter Trust.” People often request one of these so they can fully benefit from Minnesota’s estate tax exemptions when the first spouse dies. This legal move helps preserve more assets for later distribution to your children, other individuals – or one or more charitable groups;

Testamentary Trust. This type of instrument is created under the terms of your Will and becomes fully operative at the time of your death. A common example of this type of trust is one that a parent might leave to a child. The child usually gains the right to manage these trust assets upon reaching the legal age of majority. Prior to that time, a guardian is normally appointed to manage the trust;

Educational Trust. This type of fund helps cover the beneficiary’s common education expenses – such as tuition, books and supplies. The party creating the trust often includes provisions for immediately stopping all payments if the student either drops out of school — or fails to pass a set number of classes, quarters or semesters;

A Life Insurance Trust. According to the Minnesota Attorney General’s Office, a life insurance trust can provide an estate with “liquidity.” As your lawyer will explain, “the trustee of [this] trust is named as the beneficiary of the life insurance policy.” When the insured passes away, the trust receives the proceeds of the policy;

A Burial Trust. As its name implies, this is designed to cover the costs of your cremation or other burial needs. Although it can be set up while you’re still alive as a revocable trust, it becomes irrevocable upon your death;

A Supplemental Needs Trust. This can prove very useful to elderly or disabled individuals who may need added income but don’t want to be rendered legally ineligible to receive government benefits. When drafted properly, this trust’s funds cannot usually be seized by creditors or the government;

A Charitable Trust. This is sometimes called a charitable remainder trust because it allows a donor to make a tax-free gift. The first-named beneficiary is often your spouse (for a set period of time) – usually for the rest of that person’s life. When s/he dies, the money or assets are given to a specific charity. Be sure to ask your Minnesota estate planning attorney about the different types of charitable trusts you can create;

A Spendthrift or Special Needs Trust. Some people simply have trouble managing money properly. Still others may suffer from dementia or some type of mental incompetency. In order to fully protect their interests, it’s often best to create a spendthrift trust. This makes it possible for the appointed trustee to make sure all of the individual’s most basic living expenses are paid promptly. (Other requests can also sometimes be honored, depending upon the trust terms.) Money managed in this way is normally off limits to the person’ creditors.

While this list of different types of trusts isn’t intended to be fully comprehensive, it should provide you with a good working knowledge of some of the most basic types of trusts available to Minnesota residents.