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Types of trusts in Minnesota

A trust is an estate-planning tool that you can use to manage distribution of your assets. Through the trust, a third party, which is known as a trustee, holds your assets on behalf of another person or entity, which is known as the beneficiary. In Minnesota, there are different types of trusts.

The two basic types are called testamentary and living trusts. A testamentary, or after-death trust, is created by a will and then formed after your death. Typically, the assets in a testamentary trust must go through probate court. A living trust, or inter vivos trust is created during your lifetime and survives your death. 

Living trusts may be revocable or irrevocable. A revocable trust is one that can be changed, modified, or even revoked entirely. It allows you to have more control over your assets and to avoid probate, which can be a lengthy process. An irrevocable trust is the opposite. Once it is created, it cannot be modified, altered, or revoked in any way. The main benefit of an irrevocable trust is that it offers greater tax-savings benefits. 

Trusts can be established for different reasons or to meet certain goals. These are known as specific-use trusts. One type of specific-use trust is a charitable trust. As the name suggests, a charitable trust is set up to benefit a charity. Typically, you transfer assets into the trust. Upon your death, the assets are donated to the charity. Your estate receives tax benefits in exchange.

A bypass trust is another type of specific-use trust. This allows a married couple to shelter their property from estate taxes. Through a bypass trust, the first spouse to die can leave money in the trust for the surviving spouse. Any assets that remain after the surviving spouse dies can then be transferred to the couple’s children. These transfers are tax-free.

Finally, a spendthrift trust is a type of trust that allows a beneficiary to receive various amounts of money at certain intervals. It is designed to protect beneficiaries who may be too young or immature to handle money responsibly.

This post provides an overview of the types of trusts that are recognized in Minnesota. To learn more about which one may be best for you, consider speaking with an experienced trust lawyer.

Source: Ag.state.mn.us, “Probate and Planning,” Accessed Nov. 8, 2015

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