What a living trust is
A living trust is a legal arrangement you create while alive. You (the "settlor" or "grantor") transfer property to a trustee, who holds and manages it for the beneficiaries under the terms of a written trust agreement. Most people serve as their own trustee at first and name a successor trustee to take over at death or incapacity.
The revocable trust
A revocable trust can be changed or cancelled at any time while you are competent. It is the workhorse of modern estate planning because it does three things a will cannot:
- Avoids probate. Property titled in the trust passes to beneficiaries under the trust's terms, privately and without court supervision.
- Plans for incapacity. If you can no longer manage your affairs, the successor trustee steps in immediately, without a conservatorship.
- Handles out-of-state real estate. A cabin in Wisconsin or a condo in Arizona held in the trust avoids a second "ancillary" probate in that state.
A revocable trust does not reduce estate tax and offers no protection from your own creditors, because you retain full control. For tax purposes it is invisible; you keep reporting income on your own return.
The irrevocable trust
An irrevocable trust generally cannot be amended once created. You give up control of the property in exchange for benefits that a revocable trust cannot provide:
- Estate tax reduction
- Assets properly transferred to an irrevocable trust, along with their future growth, are removed from your taxable estate.
- Life insurance planning
- An irrevocable life insurance trust (ILIT) keeps a policy's death benefit outside the estate of both spouses.
- Asset protection
- Depending on its terms and timing, an irrevocable trust can protect assets from future creditors or from long-term-care spend-down after the applicable look-back period.
- Special needs planning
- A supplemental needs trust preserves a beneficiary's eligibility for public benefits.
Funding the trust
A trust controls only what has been transferred into it. "Funding" means retitling real estate by deed, changing the owner on bank and brokerage accounts, and assigning business interests. Retirement accounts are not retitled; instead, the trust may be named as a beneficiary in appropriate cases. An unfunded trust is the most common reason a family ends up in probate despite having "done a trust."
Is a trust right for you?
A revocable trust is usually worth considering if you own real estate, own property in more than one state, want privacy, want a smooth transition during incapacity, or want to control how and when heirs receive their inheritance. For a modest estate with simple wishes, a will with careful beneficiary designations may be all that is needed. The answer depends on your assets and goals, not on a rule of thumb.
Common questions
Will a living trust save on taxes?
A revocable living trust does not change income or estate taxes. Certain irrevocable trusts can reduce estate tax exposure; whether that matters depends on the size of your estate and current Minnesota and federal thresholds.
Do I lose control of my property in a revocable trust?
No. As your own trustee you continue to buy, sell, spend, and invest exactly as before. You can also amend or revoke the trust at any time.
Is a trust more expensive than a will?
A trust-based plan costs more up front because it involves more documents and the work of funding. It typically saves the family the time and expense of probate later. We discuss both approaches before you decide.
What happens to the trust when I die?
The successor trustee pays final expenses and taxes, then distributes or continues to hold property for beneficiaries exactly as the trust directs, without a court filing in most cases.
This page is general information about Minnesota and federal law as it relates to living trusts. It is not legal advice for your situation. Laws and tax thresholds change; confirm current figures with the office before acting.