Minnesota Estate Planning – Wills, Trusts and the IRS
In the midst of all the worry over the fiscal cliff crisis, the Wall Street Journal ran a really interesting piece last fall about how a person could control their heirs from beyond the grave. Though the thought of exerting control from another dimension sounds spooky, it mainly involves boring estate-planning tools and tricks. The author of the article gave a bunch of good examples about how overly meddlesome/rightfully concerned individuals in Minnesota can continue to exert influence over their heirs once they’re gone.
The first caveat to the otherworldly control discussed by the Journal is the Internal Revenue Service. Those who are interested in avoiding taxation (and aren’t we all?) need to be aware that the IRS will not allow you to continue exerting control over your assets if you want to avoid being fully taxed. This means tax benefits will be denied to those Minnesota trusts that continue to be controlled by the same person who created it, even if the control is somewhat indirect.
Famous Examples of Estate Planning mishaps
With that word of warning out of the way, the Journal discussed what is one of the most famous examples of extreme estate-planning: Leona Helmsley and her millionaire dog. Ms. Helmsley was the widow of a fabulously wealthy real estate developer who set up a trust fund to care for her aged dog after she was no longer around to do so herself. Though many people remember that part of the story, most don’t realize this was not the only quirk of her estate plan. For instance, the billionairess insisted that her grandchildren visit their father’s grave every year to be able to continue collecting checks from her estate.
In another curious and overly controlling case, a wealthy family from the Northeast included a provision in their will that required their heirs to spell their last name a certain way to continue receiving payouts. Though these examples may seem to indicate there are no limits on what a person can ask his or her heirs to do, the fact is not everything goes.
Lawful and unlawful trusts in Minnesota
One example of such a limitation includes the requirement that wills are not written in a way that is contrary to public policy. This means wills cannot require heirs to divorce or commit criminal acts. In Minnesota, state Statues Chapter 501B.01 clearly says that trusts can only be created for “lawful” purposes. Other clauses that are not allowed in Minnesota estate-plans include those that are too vague to be enforced, those that are illegal or those that are simply impossible to perform or monitor.
If you’re the one setting up such a trust or crafting a will, it’s essential that the details are tended to. Clearly explaining what you want your heirs to do, or not do, is essential to ensuring the trust is upheld in the future.
For example, do you want to provide for your children and their spouses? If so, what do you mean when you say, “spouse”? Does that include same-sex partners or is a marriage certificate required? How about “descendants”? Only grandchildren that are blood relations? What about adopted kids, stepchildren or sperm-bank babies carried by surrogates? Though the examples may seem farfetched, each has happened in real life. You have no way of knowing what shape your family will take in coming generations and specificity is important to ensure that your plan is carried out in accordance with your wishes.
Incentive Trusts in Minnesota
One specific measure given by the Journal to control your heirs is through an Minnesota incentive trust. These work by encouraging future generations to meet certain benchmarks before they are able to get a cut of the inheritance. Language can be inserted that requires recipients to maintain a certain grade point average, work certain hours or graduate with certain degrees. You can include language that only gives matching money to heirs, meaning they have to get up and work if they want a check from the estate.
You can also include provisions that include money only for specific purposes, such as starting a business. Those giving such gifts have to think long and hard about what goals they want to encourage and whether this is the best way to do it.
Another way to control heirs from beyond the grave is to create what the Journal dubs an heirloom trust, a vehicle meant to guard valuable family possessions, such as a beloved piece of property. While these trusts can work to shield a specific asset and ensure that it remains available to the whole family, the Journal recommends that those considering using such a vehicle include enough money in the trust to maintain the asset. That way the remaining heirs don’t have to fight about who has to pay to maintain the family house.
Though there are plenty of ways for you to watch over and even micromanage the lives of your offspring after you’re gone, there are limits. For example, you’d be hard-pressed to find a trustee in Minnesota willing to do the kind of work necessary to test heirs for drugs, search for tattoos or hunt for piercings before making disbursements. Such intrusive requirements will likely be found invalid and, even if they aren’t, will be practically useless for lack of enforcement.
An experienced Minnesota estate planning lawyer can help walk you through the complicated process of establishing an effective estate plan that follows your wishes and protects your family for years to come. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 360-4721.
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