If you die without a Will, you lose the opportunity to say who will inherit your assets when you die. You also lose the ability to say who will take care of your children. If you die without a Will in Minnesota, the state has an “estate plan” for you – it is the Minnesota Statutes of intestacy. Minnesota law will dictate who inherits your assets, who manages your estate, and who will take care of your kids when you are gone – and it might not be who you want. That is why it is so important to at least have basic estate planning in place to make those decisions.
You can draft your own Will, but should you? Estate planning involves many different areas of the law including probate, estate tax, gift tax, capital gains tax, income tax, property law, community property laws, and not to mention laws relating to wills, trusts, and the fiduciary responsibilities given to those named in those documents. Probate attorneys are busier than ever cleaning up the mess left by the Do-It-Yourself Wills designed to save you a few dollars on the front end. Your family will usually wind up paying for those mistakes after you have passed away. It is far better to have an experienced estate planning attorney draft your Will.
A trust is a legal arrangement where one person (the Grantor) transfers his/her own assets to another person (the Trustee) to hold for the benefit of another person (the Beneficiary). Another way to think of it is that a trust is like a box that you put your assets into. You provide instructions on who is going to get the assets in the box when you die, but those assets held in that box are still available for you to use during your life and you can also take those assets out of the box anytime you want during your life.
Not everyone needs a trust in Minnesota. Whether you need a trust in Minnesota will depend on your goals. If you want to avoid probate, avoid guardianships and conservatorships during your life, keep information about your assets private after you die, and generally make things quicker and easier on your children or heirs when you die, then a trust is potentially a good solution. There are many other estate planning options that may be more suitable for your situation than a trust. The important thing is that you speak with an experienced Minnesota estate planning attorney. Remember, if you don’t get a plan in place, a judge may decide who gets your stuff and who takes care of your kids.
A revocable trust is the more common estate planning tool in Minnesota. A revocable trust is a trust that may be amended, changed, or even revoked during the Grantor’s (the person who created the trust) life. An irrevocable trust is a trust where an individual transfers property to the trust and is not permitted to take the trust property back or revoke the trust. The most common use of an irrevocable trust is to minimize or avoid estate taxes.
Revocable trusts are not required to file form 1041 (tax return for trusts and estates). The assets of your revocable trust are treated as your individual assets for tax purposes during your life and any taxable income generated from those assets is reported on your 1040 (individual income tax return).
You first need to consider whether you should gift assets to your grandkids during your life or upon your death. If during your life, you need to be aware of gift tax consequences and also your potential ineligibility for medical assistance through the state. Gifting assets to grandchildren through your will or trust may be preferable, though you won’t be able to witness your grandkids enjoying those assets. You can provide protections for your grandchildren’s inheritance from divorce, bankruptcy or other creditors and lawsuits if you make your gift in trust for the grandkids. If you choose to give your gift to your grandkids outright, you immediate lose control over those assets and they can be lost through divorce, bankruptcy or creditors of the grandchild. Lastly, 529 plans are a financial tool that can be utilized to help pay for a grandkid’s education. You should speak with an experienced Minnesota estate planning attorney before making any significant gift to a grandchild or other individual.
An estate plan is simply planning for end of life and figuring out where your assets will go when you are gone. Typically, an estate plan consists of either a Will or a Trust (or often both), a Power of Attorney, Health Care Directive and HIPAA Waiver.
Do-it-yourself options are the cheapest since you won’t be receiving professional advice from a qualified Minnesota estate planning attorney. Some DIY options are as low as $69. A typical estate plan should range in the $1,500 – $6,000 range depending on the type of plan and the documents you are putting into place. Anything less than that and you are likely receiving basic forms filled out by an attorney who only occasionally drafts a will or trust. You get what you pay for with your estate plan. It is much better to spend a little more to get the piece of mind that everything will be handled properly after you are gone.
Your estate plan is like a car. You should change the oil every once in a while. Laws change, family situations change, and assets change. It is a good idea to meet with your estate planning attorney every 3 years in order to discuss changes that may need to be made in order to be sure that your wishes are carried out in the most cost effective and efficient manner.
You should keep your estate planning documents in a safe place. Either a safety deposit box or a fire-proof safe are good options. With technology these days, it is a good idea to store your documents “in the cloud” using a secure client portal. Gold Leaf Estate Planning keeps all of our client documents digitally in the Cloud using MyCase – our practice management software.
It takes years to learn all of the intricate rules and laws surrounding wills, trusts, probate, estate tax, gift tax, capital gains tax, income tax, powers of attorney, health care directives, and so on. The goal when you create an estate plan is to sleep better knowing things will go as planned. If you do it yourself, you are leaving it to chance and crossing your fingers that you have prepared an estate plan that will carry out your wishes.
If you have a child who has been certified as disabled and is eligible for state assistance, it is important to ensure that your child is not kicked off of government assistance. If a child who is receiving assistance inherits money under your plan, that child may become ineligible for receiving state assistance. Having language included in your plan that prevents that from happening is important. Having a “standby supplemental needs trust” built into your plan can help avoid this unfortunate planning mistake.
Both a supplemental needs trust and a special needs trust have the same intent – to provide for the needs of a disabled individual. The key difference is whose assets are used to fund the trust. If the assets are the disabled individual’s own assets, the trust used would be a special needs trust. If the assets used to fund the trust come from someone else’s assets, like a parent or grandparent, that trust is a supplemental needs trust. Both types of trusts must adhere to stringent laws otherwise the assets contained in the trust may disqualify your beneficiary for government assistance. It is important to discuss any special needs estate planning with a Minnesota special needs estate planning attorney.
Probate in Minnesota is the legal process through which assets owned by someone who has passed away (the decedent) transfer to the rightful heirs. Probate is designed to protect assets from being transferred to the wrong individuals. Despite the good intentions behind the probate process, probate in Minnesota often comes with negative connotations due to how long probate takes in Minnesota and how expensive probate is Minnesota.
You should speak with an attorney. Oftentimes banks or other financial institutions think that you need letters testamentary, but you may be able to collect that asset using an Affidavit for Collection of Personal Property. If you do actually need letters testamentary, you will need to initiate a probate proceeding for a Court to issue the letters testamentary.
You will need probate in Minnesota if the decedent owned real estate in his/her name alone or if the decedent owned assets in his/her name alone that total more than $75,000. If the asset designates who is to receive that asset when the decedent died (through a beneficiary designation), you might avoid probate. You should speak with a Minnesota probate attorney to determine whether you need probate.
Probate in Minnesota can take anywhere from 6 months to 2 years depending on the specifics of the case. Keep in mind that there is a 4-month creditor claims period and a 2-week period where notice must be published in a newspaper. How long probate will take in Minnesota will depend on the size of the estate and whether there are any unique assets of the estate. A probate like the one occurring for Prince here in Minnesota will obviously take longer than a probate for a typical estate.
Probate will usually cost somewhere between $4,000 – $12,000 for a typical Minnesota probate. For more complex estates, or where beneficiaries/heirs are fighting over the estate, these costs can far exceed these estimates.
You can avoid probate in a number of ways including designating beneficiaries on each of your financial accounts, using revocable trusts, Transfer on Death Deeds, or joint ownership. Each strategy has its own benefits and drawbacks. You should speak with a Minnesota estate planning attorney if you want to avoid probate in Minnesota.
If you own real estate in multiple states and you pass away with the real estate being titled in your name alone, you may need a probate in Minnesota and a probate in another state, known as an ancillary probate. One way to avoid this is to set up a revocable trust and transfer your interests in the real estate into the name of the revocable trust. If done properly, when you die, no probate is needed in either state.
Another way to avoid probate is to “add” your children’s names to your deed. What many people don’t realize is that you will likely need to file a gift tax return since the interest will typically be worth more than the annual exclusion (currently $15,000). Another consideration is that once your children’s names are on the deed and they are joint owners of the property, if they get divorced, go bankrupt or get sued, their interest in your home may be subject to those proceedings. That is never a good situation. There are far better options than this strategy. You should speak to a Minnesota estate planning attorney before transferring your home into your children’s names.
There is an estate tax in Minnesota. The current exemption amount is $2,400,000 for 2018. That exemption will increase to $2,700,000 in 2019 and $3,000,000 in 2020. The rates for the estate tax range between 13 – 16 %.
There is no inheritance tax in Minnesota. Note that there is a difference between inheritance tax and estate tax. An inheritance tax is a tax paid by the person inheriting the property. An estate tax is a tax paid by the estate before being distributed. Minnesota has an estate tax, but not an inheritance tax. As of 2017, Nebraska, Iowa, Kentucky, Maryland, New Jersey, and Pennsylvania are the only states that have inheritance taxes.
Minnesota does not currently have a gift tax. Note, however, that for decedents who gift assets away within 3 years of the date of their death, those assets will be included in their estate for estate tax purposes.
Under the recent Tax Cut and Jobs Act, Pub. L. No. 115-97 the basic exclusion amount for an estate tax return for a 2018 date of death increases to $10,000,000, before taking into account the necessary inflation adjustment (estimated at $11,200,000). The 2018 amount that includes the inflation adjustment has not yet been released.
For married couples, with proper estate planning, you are able to pass up to $4.8 million in Minnesota and up to $22.4 million at the Federal level free of estate tax. If you are still above those amounts, or if you are single and above $2.4 million in Minnesota and above $11.2 million at the Federal level, there are other options to reduce or eliminate your estate tax bill. The use of Irrevocable Life Insurance Trusts are a great way to avoid estate taxes. The use of Family Limited Partnerships and LLC’s with fractured ownership interests can allow you to pass a significant amount of wealth at greatly discounted rates.
An ILIT is an irrevocable trust that buys a life insurance policy on the person who set up the trust (the Grantor). If a married couple sets up the trust together, the insurance policy purchased within the ILIT is usually a second-to-die policy, so the death benefit won’t be paid until the surviving spouse passes away. When the Grantor (or surviving spouse) dies, the proceeds of the insurance policy flow into the ILIT and are distributed to the beneficiaries per the terms of the trust. The proceeds of the ILIT are NOT included in the estate of the decedent for estate tax purposes. This is a great strategy where the majority of the estate consists of illiquid assets like real estate, a business or family farm.
With proper planning, family limited partnerships may save estate taxes by discounting the value of limited partnership interests passing to your heirs. The IRS recognizes discounts for lack of marketability and lack of control. These discounts can be anywhere from 30% – 50% of the total value of the property transferred. The beauty of this strategy is that you may retain a 1% percent interest as a General Partner while transferring the other 99% in Limited Partnership interests and still maintain complete control over the assets you have transferred. This strategy is one of the more advanced estate planning techniques but it can produce significant reductions in estate tax while also providing creditor protection.
A Qualified Personal Residence Trust is a type of trust that is used to reduce the size of your taxable estate for estate tax purposes. The Grantor transfers his/her home (or vacation home) to the QPRT for a defined term of years. At the end of the term, the home passes to the beneficiaries you have selected (usually your children). The Grantor has made a gift of a remainder interest, and if the Grantor outlives the term of the QPRT, the entire value of the home is now removed from the Grantor’s estate for estate tax purposes. If the Grantor dies prior to the end of the term, the entire value of the home is still included in the Grantor’s estate. This can be an effective estate planning strategy where the majority of an estate consists of real estate that is rapidly appreciating in value.
Spouses without U.S. citizenship are not eligible for the unlimited marital deduction. The Qualified Domestic Trust is a trust designed to allow a surviving spouse, who is not a U.S. citizen, to qualify for the unlimited marital deduction. At least one trustee must be either a U.S. citizen or domestic corporation that is authorized to retain estate tax out of the trust assets and all of the trust income must be payable to the surviving non-citizen spouse. The trustee may also need to post a bond in favor of the IRS.
At the federal level, you may give away up to $11,200,000 during your life without paying any gift tax. The gift tax is unified with the estate tax. What that means is that if you give away $3,000,000 during your life, you won’t have to pay any gift tax, but your estate tax exemption ($11,200,000) will now be reduced to $9,200,000. Also, you will need to report your gift by filing a gift tax return if your gift exceeds the annual exclusion amount.
In 2018, you may gift up to $15,000 per year, per done, without the need for filing a gift tax return. If you exceed that amount, you will need to file a gift tax return, but you will not need to pay any gift tax unless you have exceeded your lifetime gift tax exemption ($11,200,000 for 2018). If you are a married couple, each spouse may utilize the annual exclusion. So if Jim and Mary want to give money to their 2 kids, Ben and Susie, Jim may give $15,000 to Ben and $15,000 to Susie and Mary may give $15,000 to Ben and $15,000 to Susie. This effectively transfers $60,000 per year out of Jim and Mary’s estate, tax free. You should consult with a Minnesota estate planning attorney and your CPA prior to embarking on a gifting plan.
If you have made a gift to an individual that exceeds the annual exclusion amount, $15,000 for 2018, you will need to file a gift tax return with the IRS. It is unlikely that you would need to pay any gift tax unless you have exceeded the lifetime gift tax exemption ($11,200,000 for 2018).
If the Minnesota decedent’s estate exceeds $2,400,000 for 2018 you will need to file an estate tax return. You will also need to file an estate tax return in Minnesota if a non-resident decedent’s estate includes Minnesota property and the estate is over the Minnesota exemption listed above, a Minnesota estate tax return will be needed. If the decedent’s estate is over $11,200,000 in 2018, you will need to file a federal estate tax return. You may also want to file a federal estate tax return even if the estate is under the federal exemption amount in order to preserve the deceased spouse’s unused exemption amount (DSUEA).
If you become incapacitated and do not have a Health Care Directive in Minnesota, your loved ones may need to file a Petition for Guardianship with the Court to appoint someone to make those health care decisions for you.
A Health Care Directive in Minnesota is a legal document that allows you to name someone else (your Health Care Agent) to make health care decisions for you if you are incapacitated or unable to make those decisions yourself. The Minnesota Health Care Directive also allows you to provide instructions regarding the type of medical treatment you want if you become incapacitated.
A Living Will in Minnesota is no longer the legal term used for this type of document in Minnesota. A living will was a document that allowed you to provide instructions regarding your health care if you became incapacitated. The elements of a Living Will have been incorporated in to our Minnesota Health Care Directives.
A Health Care Power of Attorney is no longer the legal term used for this type of document in Minnesota. A Health Care Power of Attorney was a document that allowed you to name someone to make decisions for you regarding your health care. The elements of the Health Care Power of Attorney in Minnesota have been incorporated into our Minnesota Health Care Directives.
A Power of Attorney in Minnesota is a document that allows you to name another person to make decisions and handle your legal and financial affairs. There are several types of Minnesota Powers of Attorney. The Minnesota Statutory Short Form Power of Attorney is a short, standardized document that is effective immediately once it is signed. A General Power of Attorney in Minnesota is a document that may be effective immediately, or it may be effective only upon incapacity, depending on the wishes of the person creating the power of attorney. The Minnesota General Power of Attorney generally contains the same types of powers as the Statutory Short Form Power of Attorney. Lastly, a Limited Power of Attorney in Minnesota is a type of Power of Attorney that is limited for a specific purpose (i.e. to sell my real estate, or to close my Wells Fargo bank account). There are several different types of powers of attorney in Minnesota. You should consult with an experienced estate planning attorney prior to signing one of these documents.
A Durable Power of Attorney in Minnesota is a document that is effective even after the Principal (the person who created the document) has become incapacitated. On the Statutory Short Form Power of Attorney in Minnesota, there is a box that may be checked to make the Statutory Short Form Power of Attorney “durable”.
The person you name to handle your legal and financial affairs on your Minnesota Power of Attorney is known as your “attorney-in-fact”. This person should be someone who you trust completely with your legal and financial affairs. Typically, your spouse, or another close family member would be your attorney-in-fact. Note, however, that your attorney-in-fact may empty your bank accounts, sell your real estate, and step into your shoes and handle your affairs as if he/she is you yourself. There are many risks associated with powers of attorney in Minnesota and just because someone is your family member does not mean that they won’t abuse the power you have given them. You should consult an experienced Minnesota estate planning attorney to discuss who you should name on your power of attorney.
Nursing home or long-term care costs in Minnesota are paid in one of three ways: (1) Long term care insurance; (2) Private pay; or (3) Medical Assistance through the State of Minnesota. If you do not have long term care insurance and don’t qualify for Medical Assistance, you will need to spend down your assets in Minnesota to roughly $3,000 as an individual or $6,000 as a married couple. If you are spending $10,000 per month on long term care costs, this can eat up a good portion of your estate. If you gift assets away and then apply for medical assistance, you will likely be ineligible for medical assistance if you made those gifts within 5 years of applying for assistance. The best way to avoid these costs is to create an estate plan that shields assets from nursing home costs after the death of the first spouse. If avoiding nursing home costs in Minnesota is your goal, you should speak with a Minnesota estate planning attorney who is experienced in shielding assets from nursing home costs.
It is critical that you update your beneficiary designations on all of your financial accounts and life insurance policies after your divorce. You should also update your estate planning documents to ensure that your spouse is not the custodian for any of the assets you leave to your minor children. Having a properly drafted and up-to-date estate plan with trusts for your children is the best way to ensure that your ex-spouse does not receive any of your money if you pass away.
Chances are good that if you have children who are married and who have kids of their own, you like the grandkids better than you like the son-in-law or daughter-in-law. Chances are also good that if anything happens to your own children, you would want your assets to go to your grandkids and not the ex-spouse. If you leave assets outright to your children and they later get divorced or pass away, those assets may go to the in-law. By leaving assets to your children held in trust, rather than outright, you are able to ensure that your assets stay with your bloodline, even if your child gets divorced, gets sued, or goes bankrupt.
Yes and No. Just setting up a regular Revocable Trust will not protect your own assets from your creditors. (You can, however, protect your assets from your children’s beneficiaries once they inherit those assets from you. There are some states that will allow a person to take their own assets, put it into an Irrevocable Trust, still be a beneficiary of the trust, and also shield those assets from creditors. These are called Domestic Asset Protection Trusts (DAPTs). Unfortunately, DAPTs are not permitted in Minnesota. However, there are many other asset protection strategies to use in Minnesota. Properly structured Family Limited Partnerships or LLCs are available to provide layers of asset protection for risky businesses, rental properties and professional practices.