Wills, Trusts and Probate in Minnesota
Kelly
Law Office
1013 Ford Road
Minnetonka, MN 55305
Phone: (952) 544-6356
Fax: (952) 546-3690
Mobile: (612) 735-3797
dave@kelly-law.com
THIS PAGE AT A
GLANCE
- What is probate?
- When and how does a will work?
- Should I do a living trust instead of a will?
- A warning from the Wall Street Journal about living trusts.
WHAT IS PROBATE?
You may see some other definitions, but ultimately all "probate" means a proceeding in probate court for the purpose of obtaining an order transferring ownership to property belonging to someone who has died. There may be other easier ways to transfer the ownership, and we always look for other possibilities before deciding to go to the probate court. For example, jointly held assets can always be transferred to the surviving joint owner without the help of a probate proceeding. Probate court can be thought of as a last resort for situations where there is no other way to do it.
WHEN AND HOW DOES A WILL WORK?
A will only becomes operative upon the death of he or she who made the will; and in order for it to become operative, it must be filed with a probate court, and that court must appoint a Personal Representative, also known as the Executor, to carry out the instructions contained in the will. If the will never gets to the probate court, legally it doesn't mean a thing. A well intentioned family may, however, look to a will for guidance as to what their loved one's intention was, even if it never gets to the probate court.
SHOULD I DO A LIVING TRUST INSTEAD OF A WILL?
A
living trust is a trust that becomes effective right now while you
are still alive. Wills can contain trusts that become effective
after death, and those trusts are called "testamentary trusts."
Whatever property you transfer to a living trust belongs to the
trust and not to you. This means that upon your death assets
held by the trust don't have to be probated. They are dealt
with instead in accordance with the provisions of the trust.
If you manage to put everything you own into a living trust, there
is be nothing to probate. In most instances we've seen,
however, individuals never manage to get all of their assets into
the trust. There are assets they meant to transfer into the
trust but never got around to, or there are some assets that they
would rather keep out of the trust for various reasons. Even
if your intention is to have the trust hold all your assets, you
should still have a will to cover anything which just might not make
it into the trust.
Sometimes a living trust is set up for the
express purpose of dealing with certain assets that would be
especially troublesome to probate. For example, if an
individual had real estate in several different states, it might be
a way to avoid multiple probate proceedings in those different
states. For an individual who has no children, no spouse and
no close family, a living trust may be a handy tool for keeping a
homestead (which might otherwise be held jointly with the close
family member) from getting tied up in probate. We saw a
situation recently where someone died four days before their home
was scheduled to be sold. Had a probate been necessary the
sale would have been delayed while the probate court appointed a
personal representative who could sign the deed. Luckily the
homestead was held in the name of a living trust, and the trustee
was able to go ahead with the closing on time.
Most living trusts are revocable trusts. This means that the
person who put the assets in has the ability later to take those
assets out of the trust. Most people prefer to have it that
way, but they must remember that anything in a revocable trust is
included in that person's estate for estate tax purposes.
Assets put into a properly prepared irrevocable living trust,
however, will usually be considered to be outside of the estate for
estate tax purposes. Transfers of valuable assets to an
irrevocable trust can trigger a gift tax if one is not careful.
In our experience the only thing you would want to transfer to
such a trust would be a life insurance policy - a policy that has
little value now but which will have great value upon your death.
Such a move could prevent estate taxes on the life insurance
proceeds which would otherwise be included in your taxable estate.
Our experience has been that most of our clients, who have relatively small estates, and who live in Minnesota and have all their assets here, are usually better off not bothering with a living trust. A will is all they really need. A will is not a method to avoid probate; but a will does make probate quicker and cheaper. The right kind of will can also save large sums in estate taxes, if your estate is large enough to have such taxes. In Minnesota probate tends to be quick, cheap and easy. We suggest a healthy skepticism concerning seminars about how to avoid probate. Often such seminars are put on by those in the business of being trustees. See your lawyer instead. Most likely the lawyer will advise that all you need is a will, perhaps a very simple will.
A WARNING ABOUT LIVING TRUSTS
The Minneapolis Star Tribune published a Wall Street Journal article on June 18, 2000 entitled "Living Trusts Can Be a Raw Deal." It listed the following reasons to be careful and perhaps think twice before doing a living trust:
- Living trusts often aren't tailored for your family.
- They can hurt your eligibility for Medicaid
- Most people don't get a tax advantage.
- It's not always easier than going to probate court.
- The cost - $750 to $2500 - often isn't worth it.
- They can complicate your estate if not done properly.
The article warns of "trust mills" which target older Americans in mass mailings, newspaper ads and door to door campaigns. The ads often erroneously claim that the trusts will let your heirs avoid estate taxes. Many use the AARP name even though AARP is not behind these products. Many states are cracking down on these practices, including Michigan, Florida and California. The article concludes as follows:
"Handled properly, a living trust allows wealthy people to reduce the amount of taxes owed by their heirs. Living trusts also are a good way to make sure certain wishes are carried out -- such as the care of a special-needs child if an elderly parent dies. ... But for moderate and low-income people, living trusts probably aren't a good idea."Kelly Law Office represents bankruptcy and dwi clients throughout the Twin Cities - Minneapolis, Minnesota area including Champlin, Crystal Bay, Dayton, Eden Prairie, Excelsior, Hamel, Hopkins, Howard Lake, Long Lake, Loretto, Maple Plain, Minneapolis, Minnetonka Beach, Minnetonka, Mound, Navarre, Osseo, Rogers, Saint Bonifacius, Saint Paul, Spring Park, Wayzata, Young America, Bloomington, Edina, St. Louis Park, Wayzata, Plymouth, Maple Grove, Brooklyn Park, Anoka, Shakopee, Hastings, Eagan, Burnsville, Buffalo, Waverly, Montrose, Hennepin County, Anoka County, Carver County, Scott County, Ramsey County, Dakota County, and Wright County.
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