Everything you wanted to know about trusts

Do I need a trust?

A myth exists that trusts are only for the very wealthy. In fact, many people may find that a trust offers flexibility, security and efficiency in managing their financial matters. Trusts may be used to handle financial issues during a period of incapacity, to streamline the process of administering your estate following your death, to guide the expenditure of funds on behalf of minor children or by young adult children, to improve the quality of life for a person with a disability, to maximize the impact of charitable donations, and to minimize certain taxes.

Providing for minor children

A trust provides a way to manage funds and pay for the care of minor children in the event that both parents should pass away. In establishing the trust, the parents determine and set forth how they would like the funds they leave behind to be spent by the person(s) who will be responsible for caring for the children. Typical provisions include authorizing spending on medical needs and educational expenses. Additionally, the trust may provide more customized terms that reflect the family values. For example, the trust may provide that funds may be spent to send the child to a music, sports, or other type of camp one time per year. By giving such specific guidance, the trustee knows exactly how the parents would like the money to be distributed, and the guardian can feel comfortable spending the funds accordingly.

Managing funds for young adult children

Sometimes parents are concerned about how their adult children would manage the receipt of a large sum of money following the death of the parents. Trust language can provide a timeline for distribution of the funds. For example, a trust could direct that a certain percentage of the assets be distributed when a child reaches age 25, another percentage at age 30 and a final distribution at age 35. In this way, the young adult can learn to manage finances, while the remainder of the assets remain under the protection of the trustee.

Providing for disabled loved ones

A person with a disability may qualify for certain public benefits such as Medical Assistance. While benefits may cover basic necessities and living expenses, they often do not stretch to allow for entertainment or travel. Family members may wish to provide funds to allow the person to enjoy these “extras.” However, giving money outright to a person may be problematic with respect to eligibility for benefits. Again, a trust can provide a solution. Minnesota recognizes both “special needs” and “supplemental” trusts. These trusts provide funds for certain extra things and activities, without jeopardizing a person’s benefits.

Tax planning and charitable gifting

Many of us want to maximize the impact of gifts we make to charity and minimize any taxes that we pay. As a person’s wealth increases, there are strategies available, using trusts, to accomplish both of these goals. D