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Types of Minnesota Trusts

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Types of Minnesota Trusts

A trust is an entity set up to hold assets for the benefit of one of more people. The person setting up the trust is called the Settlor. The person managing the assets of the trust is called the Trustee. The person who will receive income or assets of the trust is called the beneficiary.

There are many kinds of trusts:

Testamentary Trust

This is set up in the Settlor’s Will and is funded with the Settlor’s assets after his death. Assets are transferred into the trust after the Settlor’s death and a trustee is named in the Will to manage the assets. This is often used for minor beneficiaries who would not be able to manage assets until they are older.

Inter-Vivos Trust

This is set up during the Settlor’s lifetime for a specific purpose. There must be a written Trust Agreement between the Settlor and the Trustee that defines the powers and duties of the Trustee and the rights of the beneficiaries to receive distributions from the trust. Some trusts are for a specific purpose such as a college savings trust or a charitable trust.

Special Needs Trust and Supplemental Needs Trust

These are set up for the benefit of a disabled person whose eligibility for governmental assistance such as Social Security Disability is dependent on the person’s assets, either with funds received by the individual from an insurance settlement or similar source or with funds belonging to another person such as a parent or grandparent. The trust agreement specifies that the trust assets are to be used to supplement the governmental assistance but no funds are to be distributed that would make the person ineligible for assistance. Generally they are used for “extras” that are not paid for by the assistance.

Revocable Trust

This type of trust is generally set up by a person instead of a Will to hold assets during the Settlor’s lifetime and distribute them to beneficiaries after the Settlor’s death. The Settlor is usually the initial Trustee with one or more successor trustees are named to take over if the Settlor can no longer manage the assets or upon the death of the Settlor. The advantages of holding assets in a revocable trust rather than in the person’s own name is to avoid probate, maintain privacy (no description of assets or their value has to be filed with a court), and planning for incapacity of the Settlor by naming one or more successor trustees. Disadvantages are that assets must be transferred into the trust during the Settlor’s lifetime to avoid probate, and it is more expenses to set up than a Will (although the costs of probate are avoided later).

Duties and Powers of a Minnesota Trustee

The duties and powers of a Trustee can be written in the Trust Agreement and are also defined by statute. Generally they include the duty to manage and/or invest the trust assets, and to distribute them according to the Trust Agreement. Often beneficiaries are entitled to distributions of all income earned by the assets and distributions of principal at certain defined times, for certain purposes or at the discretion of the Trustee. When all assets have been distributed, the trust terminates.

The Trustee has a fiduciary duty to the beneficiaries and must act with reasonable care and in good faith. The Trustee must act in the manner that persons of ordinary judgment and intelligence would act in the management of their own affairs. Trustees generally have the power to invest assets, to pay expenses, to decide whether to retain or sell assets, and to provide regular account statements to the beneficiaries.

A Trustee can be an individual, often a family member or friend of the Settlor, or a professional, usually a bank or trust company. There can be one trustee or more than one trustee who act together, called co-trustees. Usually a trust agreement names one or more successor trustees who would take over if the original trustee can no longer serve.

If a Trustee is not performing his or her duties properly, the trustee may be removed as provided by the trust agreement or by a court, or otherwise sanctioned.

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Call Thatcher Law Firm To better answer your questions about the types of Minnesota trusts and which one is best for you, call and ask for Cathy Thatcher. 952-270-8801