Understanding Wills vs. Trusts
During the initial stages of estate planning, one of the first questions we are often asked is whether a trust or will is needed. Each person’s situation is unique, and the specific facts of your situation – your goals, needs and concerns – will determine the best course of action for you. It’s essential to note that estate planning is for all estates, so even if you don’t have an extensive list of assets, even basic estate planning documents will save your loved one’s time and money after your death. While the best person to advise you on this matter is a licensed attorney, it can still be helpful to have a basic understanding of the options available to you in the state of Minnesota.
Dying without an estate plan means Minnesota’s inheritance laws, using a set formula, determine how your estate will be distributed. More often than not, what state statute will do absent formalized legal documents does not align with a person’s actual wishes and intent. For this reason, it is important to have a will or trust in place to make certain your wishes, assets, and loved ones are protected.
If you have a smaller or less complicated estate, a simple will might be the right option. According to the website for Minnesota’s Attorney General, “A will is a simple way to ensure that your money, property, and personal belongings will be distributed as you wish after your death.” A will also gives you the opportunity to name your personal representative — the person in charge of carrying out your wishes after your passing. And if you have dependent children, this document will allow you to name guardians.
It is important to note that having a will does not guarantee that your estate will avoid probate, so your loved ones may still have to deal with the often costly and time-consuming process. When probated, wills become public record, meaning the nature and value of your assets will be made public. It can be possible to avoid probate while only having a will in place, but planning must be done carefully and in accordance with how your assets are held/structured and how you wish for them to be distributed.
While seemingly straight-forward, a DIY will might be tempting to save costs upfront, but if not done correctly and as required under Minnesota law, it can ultimately cause more problems and expense.
For other situations, a revocable trust (also called a “living trust”) may be the best option. Creating a trust allows you to manage the distribution of your assets by using a trustee of your choice. A trustee can be a friend or family member or a hired financial professional. An attorney may advise having a trust if you have a more complicated estate, significant assets, or more comprehensive needs, goals or concerns.
Some clients choose a revocable living trust because they want to have more control over the distribution of assets to children or young beneficiaries. For example, if you don’t want your children to inherit all your wealth when they turn 18, this kind of trust can distribute certain percentages of the estate at specific ages. Perhaps they inherit a certain amount at the age of 25, more at 30, etc.
Other clients opt to create a trust because they own real estate in multiple states and do not want the property to have to be probated in each state. By owning multiple properties in trust, a plan can be made for such property to be sold or distributed easily and cost-effectively.
Trusts can also offer estate tax planning strategies to protect assets over the estate tax exemption amount (currently $3 million per individual in Minnesota, and $13.6 million per individual federally). Sometimes this may include discussing a specialized trust in addition to a revocable trust, but for married couples, revocable trusts also offer initial estate tax considerations that can be taken advantage of.
Finally, many choose to create a trust to avoid probate. When drafted and funded correctly, trusts can function to pass assets to beneficiaries while efficiently and effectively avoiding probate – often saving significant time and money. Additionally, trusts offer more privacy. Only your trustee and beneficiaries will know the nature and value of the assets.Working with a seasoned attorney can help make certain your plan will work to protect your assets and loved ones. When working with a licensed attorney, they will help you determine whether a will or trust is the most efficient and cost-effective method to meet your goals, needs, and concerns.
Rachel Schromen and Melissa Miroslavich are estate planning attorneys at Schromen Law, LLC. Located in St. Paul, Minnesota, Schromen Law offers comprehensive estate planning and elder law services with a holistic approach to support clients who do not want to be rushed through navigating important decisions and planning.