Estate Planning

Carlson Estate Planning has been helping clients with their estate planning for over 25 years. Proper estate planning helps preserve assets during your life and provides for the proper distribution of your assets at death. Proper estate planning also minimizes taxes and expenses to your estate, provides planning for your incapacity, and helps protect your loved ones and their inheritances. Using a variety of tools, along with extensive real world experience we develop personalized plans, which often include one or more of the following:

  • Wills and Trusts
  • Powers of Attorney
  • Health Care Directives
  • Estate and Gift Tax Planning
  • Retirement Benefit Planning
  • Asset Protection Planning
  • Business Succession Planning
  • Charitable Gifting
  • Family Limited Partnerships
  • Limited Liability Companies
  • Corporations
  • Life Insurance Trusts
  • Guardianships and Conservatorships
  • Supplemental Needs Trusts and Special Needs Trusts

Who needs Estate Planning?

Estimates are that 70% of Americans die without a written estate plan. In part, this is because many people believe that estate planning is only for the wealthy, or elderly.

In reality, almost everyone can benefit significantly from a well-designed estate plan.

The following information is designed to give you an overview of the estate planning process and the main options you have for implementing a plan. It contains basic information about wills and trusts, the two most common ways of providing for the distribution of your assets.

What happens if you die without an estate plan?

If you don’t prepare an estate plan, state law will dictate how your estate will be distributed at your death. In addition, you may leave your heirs with unforeseen legal problems and costs. If you die without an estate plan:

Your beneficiaries will be determined by state law. Your estate will be distributed according to your state’s intestate succession statutes. These statutes vary from state to state and provide generally for a distribution of your property in varying amounts to your spouse and relatives. While the statutes are designed to be generally fair, they often result in a plan of distribution contrary to what you have chosen.

Your estate will probably be subject to probate. Probate is a legal process for transferring your estate to your heirs upon your death. Under this process, your estate is valued, your debts, including taxes, are paid, and your remaining assets are distributed to your heirs. Depending on your particular circumstances the probate process can take from 1 to 2 years or longer. During this time your heirs will usually not be able to receive their full distribution.

Guardians. If you haven’t legally appointed a guardian for your minor children, a probate court will appoint one for you. The court’s choice obviously might be someone different than you would have chosen to care for them.

Conservatorship. If you become mentally disabled before you die, the probate court will appoint someone to take control of your assets and personal affairs. This is often referred to as a “living probate” or guardianship proceeding. These court appointed agents must file strict annual accountings with the court, a procedure that is usually expensive and time consuming.

Estate tax. Currently, larger estates, which exceed $5 million in value are subject to a severe federal estate tax or “death tax” with tax rates of up to 35%. Additionally, Minnesota estate taxes are levied on estates exceeding $1 million, with tax rates as high as 38%. A well prepared estate plan can minimize or even eliminate estate taxes.

Common Estate Planning Methods.

There are a number of ways to provide for your beneficiaries, depending on your family’s circumstances, the value of your estate, and the type of assets which comprise your estate. The most common forms of estate planning are joint ownership or POD, wills and trusts. The most common forms of joint ownership are:

Joint Tenancy/POD. Assets can be held in Joint Tenancy With Right of Survivorship or have a Payable on Death beneficiary (POD). Joint ownership allows two or more people to hold title to an asset together. Upon the death of one of the owners the entire interest passes automatically to the surviving joint tenants. The joint tenant’s interest passes to the surviving joint tenants immediately at death. Payable on Death or Transfer on Death designations allow assets to pass automatically to named beneficiaries at death.

Although joint tenancy and POD avoid probate, it may result in passing property to unintended heirs if the joint owner or POD beneficiary does not survive. In addition, the tax laws that apply to the property transferred to the survivors may not always be to their advantage. This form of ownership is a very basic form of estate planning and often used because it seems relatively simple. However, this form of planning is not recommended for most estates because of unforeseen problems that joint tenancy ownership can create.

Tenancy-in-Common. This form of joint ownership allows owners to own equal or unequal interests in the property. Under this ownership arrangement the ownership of a joint owner passes to his or her beneficiaries rather than the surviving joint owners upon death. In most cases, the assets will pass through probate before distribution can be made to the heirs.

Community Property. Community property laws apply in following ten states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

In these states, each spouse holds a one-half interest in all property acquired by either spouse during their marriage.

While joint ownership is a simple way to transfer property, it often does not address estate planning concerns which extend beyond ownership of the property. Properly drafted wills and trusts provide more complete estate planning vehicles to ensure that assets will be received by intended beneficiaries with a minimum tax cost.

What you Should Know About Wills

Traditionally, preparing a will has been a fundamental step in estate planning. With a properly drafted will, you can arrange for your assets to be distributed in any way you wish and ensure that settlement of your estate is supervised impartially by a local court. In this section, we offer some basic facts about wills and suggest how writing a will may impact your estate.

What is a Will?

A Will is a legally executed document that states how all property in your name is to be distributed at your death and names an executor for your estate. Among other things, a Will can:

  • Designate property to be placed in trust for family members or other beneficiaries;
  • Designate a guardian for any minor children;
  • Direct how debts, taxes, probate fees, and other costs are to be paid;
  • Provide living expenses for family members during the probate period; and
  • Designate a fiduciary to manage the affairs of an incapacitated or minor beneficiary.

Of course, your Will won’t become effective until your death. But until then, you can change the terms or revoke it, as long as you are considered mentally competent.

How a Will is prepared.

There are several ways to prepare a Will. You can prepare your Will by typing it up yourself, or even writing it out longhand (a holographic Will). But since there are very specific requirements governing the legal validity of a Will, the only way to assure that your Will becomes effective is to have it prepared by an attorney.

The requirements for executing a legal Will vary from state to state, but the basic requirement are that:

  • You are of sound mind and of legal age;
  • You declare the document to be your Last Will and Testament
  • You sign the Will, or if you are physically unable to sign, have an authorized person sign for you; and
  • Your Will is witnessed and signed by two or more individuals.

What happens at your death?

At your death, your Will must be probated. As mentioned, probate is a legal procedure for settling your estate that is supervised by the court. During the probate period:

  • Your executor notifies beneficiaries of your death and provides each beneficiary with a copy of your will.
  • A death notice is published in a local newspaper and mailed to any ascertainable creditors. This gives creditors the chance to present unpaid bills and allows any interested party the chance to contest your Will.
  • The probate attorney files appropriate papers with the court and attends any required hearings.
  • Your executor works with the court to inventory and value your assets, pay debts, pay estate and other taxes, collect benefits, and file your final income tax returns.
  • After these steps have been completed, your executor obtains an Order of Distribution from the court, makes distributions to your beneficiaries according to your Will, and your estate is officially closed.

The tax implications of a Will.

It is imperative to consult an attorney about the specific federal and state tax implications of any Will you prepare. Some of the tax considerations which apply to Wills are discussed later in the section entitled, Avoiding Estate Taxes.

The cost of a Will.

The initial fees for drawing up a will can range anywhere from $100 to $2,000 or more, depending on the complexity of the Will and legal fees in your area. While the cost of preparing a Will can often be modest, the cost of probating it can be high.

Legal and administrative fees for the probate procedure are generally based on (1) statutory percentage fees (commonly a percentage of your estate), or (2) a reasonable compensation depending on your home state. Minnesota utilizes the reasonable compensation approach, which essentially allows attorneys to charge any fee they consider appropriate unless the court, upon review, considers it unreasonable. Probate fees can take a sizable bite out of your estate- even before it is taxed.

The Advantages and Disadvantages of a Will.


  • Any disputes can be settled impartially through the probate court.  
  • The probate process can shorten the time allowed creditors to make claims against your estate.  
  • Probate estate may select a fiscal year other than a calendar year, which may be more favorable for income tax purposes.  
  • Special provisions in a well prepared Will can reduce or eliminate estate taxes.


  • The cost can be high. If your estate is substantial, the legal and administrative fees associated with probate can be high. As mentioned, fees paid to the probate attorney and the estate executor are based wither on a percentage of the value of your estate or reasonable compensation for the attorney. In addition, fees can be incurred for such things as filing special court petitions, appraisals, and arbitration. All of these fees are paid by your estate- leaving that much less for your beneficiaries.
  • Distributions may be delayed. Generally, the probate procedure takes a minimum of 6 to 9 months for simple estates and 1 to 2 years or longer for more complicated estates. And if your Will is challenged, the probate procedure can easily drag on for several years. During this time, assets are usually unavailable to beneficiaries. (If there are sufficient assets in the estate, the probate court can make a preliminary distribution, or release funds for family living expenses, but whether to do so is entirely within the court’s discretion.)
  • A separate probate proceeding is required for every state in which you own real property. If you own out-of-state property it much be probated in the state where it is located. This involves additional costs and delays because separate petitions must be filed and a separate probate procedure conducted.
  • There is a lack of privacy. All documents filed with the probate court are a matter of public record.
  • A Will makes no provision for your incapacity. A Will is only effective at your death. Thus, there is always the possibility that if you were severely injured in an accident or became ill and were unable to manage your own affairs, the court would place you under probate conservatorship, which could be costly. For this reason, Wills are often accompanied by another legal document called a Durable Power of Attorney that covers incapacity.

What You Should Know About Trusts.

Trusts can be established under the provisions of a will or can be set up under a separate will substitute trust agreement- and they can have many advantages. The best known of the Will substitute trusts is the funded revocable trust or living trust with advantages which include probate avoidance. More and more people are using trusts as their basic estate planning document, either in conjunction with their Wills or as a Will substitute.

What is a Trust?

A trust is a legal arrangement in which you (as the trustor and grantor) place property in the trust for the benefit of one or more individuals (beneficiaries). A trust is established via a trust document in which you name someone (a trustee) to manage assets placed in the trust and give instructions on how distributions are to be made.

Assets of all kind can be placed in a trust, including bank accounts, real estate, securities, mutual fund shares, limited partnership and personal property such as cars or jewelry. (Some assets may not be appropriate to place in a trust, so be sure to consult with your attorney before making such designations.) With a trust you can:

  • Maintain ownership and control of your assets during your life time if you wish;
  • Manage your own trust investments, or provide for their management, should you not wish to manage them or become incapacitated;
  • Provide for the management of trust investments at your death, if beneficiaries are inexperienced;
  • Arrange for your spouse to receive investment income for life, with the principal distributed to your children at his or her death;
  • Stipulate the circumstances under which distributions are to be made (for example, you can specify that your children should receive a certain amount solely for education purposes); and
  • Provide for the ongoing support of a disabled family member for his or her lifetime.

The two basic types of trusts.

Trusts can be broadly categorized as revocable, which means you can change the terms or cancel it at any time during your lifetime (but the terms become irrevocable at your death), or irrevocable, which means that you can never alter the terms or revoke it, once it is established. Revocable and irrevocable trusts are created for very different purposes, but both types of trusts may be included in an estate plan.

Common estate planning trusts.

The two most common forms of estate planning trusts are living trusts and testamentary trusts. A testamentary trust becomes effective only at your death, at which time it becomes irrevocable. A living trust becomes effective the moment you open and fund your trust account.

Living trusts can be revocable or irrevocable. A revocable living trust is typically chosen by individuals who want to create a flexible estate plan, retain control of their assets during their lifetime, and minimize estate taxes.

How a trust is established.

If you decide to set up a testamentary trust, your attorney will write the terms of your trust in your Will. If you decide to set up a living trust, your attorney will write the terms in a separate document called a trust agreement.

To be valid, in most states, your trust generally should satisfy certain basic requirements. Among other things, it should:

  • Contain a specific purpose (i.e., the management and distribution of assets);
  • Contain specifically indentified property;
  • Indicate one or more easily verifiable beneficiaries;
  • Make provisions for a trustee to manage your property for the benefit of your beneficiaries; and
  • Spell out the terms under which the trust will terminate.

How assets are placed in a living trust.

Unlike the assets in a testamentary trust, which are transferred to the trust through your Will after you die; assets are placed in a living trust while you are alive, after your trust agreement is completed.

The title on all property you are placing in the trust must be re-titled from your name to the name of the trust (i.e., from John Smith to the John Smith Living Trust). This process will probably include:

  • Preparing a new deed for the transfer of real estate;
  • Changing title on bank and brokerage accounts;
  • Changing title on Stock Certificates;
  • Changing title on limited partnership interests;
  • Transferring or assigning your vehicles and other tangible personal property to your trust.

How a revocable living trust works during your lifetime.

With a revocable living trust, you can manage trust assets the same way you would manage your personal investment portfolio. A revocable living trust gives you a great deal of flexibility because:

  • You or anyone you name can act as trustee;
  • You can retain full control of the assets in your trust;
  • You can change the terms or revoke the agreement any time financial circumstances or family relationship change; and
  • You can identify one or more successor trustees in your trust document, should you become incapacitated or no longer wish to be the trustee.

What happens at your death.

If you have a revocable living trust, your trust will already be in operation but becomes irrevocable at your death. However, your trust agreement will dictate how your property is to be distributed. Assets placed in the trust during your life will avoid probate. Assets can be distributed to your beneficiaries upon your death; or assets can remain in the trust for a specified period following your death, with your successor trustee managing investments and income distributions.

If you have an irrevocable trust, your trust will already be in operation, and the trustee named in your agreement will continue to manage the investments and make beneficiary distributions. However, your trust agreement can include certain provisions which will be triggered only at your death.

If you have a testamentary trust, it will be established through probate, under the terms of your Will. When the probate procedure is completed, assets will be placed in the trust, and your trustee will take over their management. It will be the trustee’s responsibility to distribute the trust income and/or principal according to the directions in the testamentary trust.

Income Tax Implications of a trust.

If you are the trustee or co-trustee of your revocable living trust, which is usually the case, you will report income from the trust, along with your other income, on your regular individual tax return. No separate tax reporting for the trust will be necessary.

At your death, your revocable living trust becomes irrevocable. During the period before distributions are made to your beneficiaries, your trustee must file a separate tax return for the trust and will probably be the person to file your final personal income tax return.

Estate Tax Implications of a Trust.

Because you have lifetime ownership and control of the property that passes into a testamentary trust or a revocable living trust, the IRS will include it in your taxable estate. Under current Federal Law if your net taxable estate, including assets that will be transferred to your testamentary trust, is valued at over $5,000,000 in 2011 or 2012, your estate will be subject to federal estate tax on the overage. In addition, if your net taxable estate is valued at over $1,000,000, your estate will also be subject to a Minnesota estate tax on the overage. Some of the tax considerations which apply to trusts are discussed later in the section entitled Avoiding Estate Taxes.

The cost of a trust-based plan.

The cost of drafting a revocable living trust agreement will depend on its complexity, the value of your estate, and the usual fees for attorneys in your area, and can range from $1,000 to $5,000.

In most cases, the cost of preparing and settling a revocable living trust agreement will be lower than the cost of preparing and probating a will-based plan.

The Advantages and Disadvantages of a Revocable Living Trust


  • Avoids the delays and costs of probate. A living trust distributes assets to your heirs without time-consuming court procedure. Settling a trust can be far less expensive than probating a Will.  
  • Can reduce or eliminate estate tax. A well-prepared trust can unburden your beneficiaries of heavy and needless taxation. (The same tax savings can also be achieved through properly prepared provisions of a Will.  
  • Preserves financial privacy. The terms of a trust, unlike those of a will, are generally not a matter of public record.  
  • Assures uninterrupted management of your trust investments, should you become ill or incapacitated. 
  • Bypasses probate for real property held out of state. Unlike out-of-state property bequeathed in a will, which requires a separate probate proceeding for each state where property is held, property held in a living trust passes directly to your beneficiaries, avoiding the time consuming probate procedure.  
  • Can provide for the ongoing management of your investments for family members who may be financially inexperienced or incapacitated.  
  • Is valid in every state. Living trusts are recognized in every state. If you move elsewhere, few changes in your agreement may be required, although it may become necessary to execute a new pour-over will. Be sure to check with an attorney, however, as state laws vary.


  • Time and effort are required to transfer assets to the trust. A certain amount of time and paperwork will be required to register real estate, bank accounts, securities and other property in the name of the trust. There are established procedures for making these changes. Your attorney should be available to help you register assets in the name of the trust.
  • Real estate placed in a trust may make refinancing more difficult. If you want to refinance property in a trust, you will need to check with your lender. Some lenders won’t refinance trust property, for fear the trust agreement may prohibit is sale, and you may need to reassume title until financing is complete.
  • The initial costs of setting up a trust are usually higher than those for a will. But ultimately, your beneficiaries may save on probate costs.

Avoiding Estate Taxes- Married Couples

The tax laws on trusts and wills can be complex, continually changing, and vary from state to state. You should always consult an attorney or tax advisor about the specific tax implications of any estate plan you adopt. This section touches on a few of the major federal and Minnesota estate tax issues confronting married couples and how wills and revocable living trusts can be used to address those issues.

Estate Tax Implications

Current federal law allows each individual to leave an estate of $5 million in 2011 and 2012. After 2012 the Federal exemption will be reduced to only $1 million unless Congress changes the law. Minnesota law likewise imposes a Minnesota estate tax on individual estates exceeding $1 million. With proper design, estate plans can be drafted to avoid estate taxes for couples with estates exceeding these exemptions.

The unlimited marital deduction.

Depending on the value of your estate, there are several ways to reduce, defer, or even eliminate estate tax on your property. For example, under the unlimited marital deduction, you can transfer any amount directly to your spouse or to a qualified trust for his or her benefit free of estate tax. This allowance can reduce or eliminate estate tax upon the death of the first spouse.

There is one pitfall to leaving sizeable amounts outright to your spouse. While the marital deduction eliminates estate tax at your death for your spouse, when your spouse dies, your beneficiaries must pay estate taxes on anything that your spouse passes on to them (in excess of current $5 million for Federal estate taxes after 2010 and $1 million for Minnesota estate taxes.) With proper planning, however, the estate taxes payable upon your spouse’s death can be reduced by the use of tax-saving trusts established before the death of the first spouse.

Unless you plan carefully, your children or other beneficiaries will be responsible for the taxes on your estate. Strategic planning can often reduce or eliminate the tax that the next generation pays on larger estates. One of the most popular ways to provide a tax shelter for your children is via a bypass or credit shelter trust (A bypass trust can be set up as part of either a will or a living trust).

Establishing a Bypass Trust. One of the most popular ways to provide a tax shelter for your children is via a bypass or credit shelter trust. By establishing a bypass trust in your will or revocable living trust, you can utilize the federal and state exemption equivalents as well as the marital deduction to shelter your assets from taxation. Here’s how:

Establish a bypass trust, using the federal exemption equivalent. Using the federal exemption equivalent, you can place assets of up to $5 million in 2011 and 2012 in a trust for your spouse, your children, and/or beneficiaries you choose. Even if your spouse is a trust beneficiary (receiving some-or all- of the income it earns and perhaps needed distributions of principal), your children (or the final beneficiaries) pay no federal estate tax on the distribution of the trust principal when your spouse dies.

Leave the remainder outright or in trust to your spouse, using the martial deduction. Using the unlimited marital deduction, you can leave additional assets tax-free to your spouse. Amounts can be given either outright or in a trust which qualifies for the marital deduction. Only this portion of your estate will be subject to an estate tax at your spouse’s death. Since a $5 million Federal exemption is allowed on your spouse’s estate in 2011 and 2012, if your total estate is less than $10 million, your children could end up paying no federal estate tax at all. Similarly, the use of this strategy can avoid all Minnesota estate taxes if your total estate is less than $2 million.

Establishing an irrevocable trust during your lifetime. Since you relinquish beneficial ownership and control of assets placed in an irrevocable trust during your lifetime, these assets are usually not subject to estate tax, since they were already removed from your estate. However, transferring assets into the trust will be considered a gift and subject to the gift tax, if applicable, at the time of transfer.

New Federal and State Estate Tax Exemption Amounts and Rates

Calendar Year Federal Exemption Minnesota Exemption Highest Tax Rate

2011 $5 Million $1 Million 35% Federal 38% State
2012 $5 Million $1 Million 35% Federal 38% State
2013 $1 Million $1 Million 55% Federal 38% State