Minneapolis Business Lawyer

Trusts

Trusts are based upon the idea that property has at least two rights – ownership and enjoyment. Trusts originated hundreds of years ago as the wealthy sought ways to allow enjoyment of property to someone who was not able to own property, such as a non-citizen or a minor child. In order to accomplish the transfer of the enjoyment of the property, a person would transfer property to a friend with instructions that the benefits of the property were to be enjoyed by someone else. Essentially, a trust is a contract between its creator and the trustee with regard to the handling of certain property.

A trust is created by a document that directs how the trust is to be operated and the property managed. Property is placed in the trust by someone either during their life or at their death by using a will. The trust is managed by a trustee, which depending on the circumstances and objectives may also be the same person creating the trust. The earnings of the trust and eventually the property in the trust are distributed according to the wishes of the creator of the trust following the pre-determined instructions. There are many reasons why a trust might be useful, just a few are:

• Desire to remove assets from an estate subject to estate tax.
• Provide for a minor child or a family member with special needs.
• Create a legacy fund to support charitable causes.
• Manage property while in public office.
• Protect assets from creditors.
• Anonymity.

A common misunderstanding is that trusts are complicated and expensive. While use of trusts traditionally was reserved for the wealthy, today many “ordinary” people invoke the benefits of using a trust. In many cases, a trust is no more expensive to create than a corporation or a limited liability company. Similarly, the operation of a trust is no more complicated than the operation of a business entity. For those not interested in the management of a trust, there are many reputable trustees for hire.

There are two areas of special concern when considering a trust. First, taxation is a challenge, as both the transfer of property into a trust and the generation of income in the trust can result in unexpected tax liabilities. Second, the selection of the correct trustee is critical. Trustees may be an individual or a corporation, such as a trust company or bank. The selection of a trustee is of extreme importance because the trustee legally controls the property in the trust. While the trustee is under a fiduciary duty to protect the interests of the trust's beneficiaries, the trustee also has the actual ability to waste or misappropriate the assets of the trust. Further, the trustee may need to be compensated, depending on the duties performed and the relationship to the creator and beneficiaries of the trust.

With proper planning, a trust can be a very valuable tool because of its ability to protect assets, manage assets for the benefit of others and to save legal and tax expenses.