Setting up a trust involves many important decisions, but the actual process of funding the trust can be done relatively quickly. The critical steps that come beforehand, though, will dictate the future performance of the trust, including its ability to provide the benefits you want.
If a trust is formed without proper preparation, it could easily result in significant financial and legal challenges for the trust creator (called a grantor). For irrevocable trusts, the grantor may never ever be able to retrieve all of the assets they used to fund the trust, at least not fully intact.
There are also many key factors to weigh, such as who to name as trustee and when to instruct them to make distributions to beneficiaries.
An Albuquerque setting up a trust lawyer can help you with all of these hefty considerations. With their experience and knowledge, you will be able to decide on the perfect trust arrangement in light of your goals. You can then fund the trust and provide instructions to your trustee (or future trustees) so that everything goes smoothly and according to plan.
New Mexico Financial Law has decades of collective experience in helping individuals with trust formation, estate planning, trustee selection, and other important tasks. Find out how we can help you form the best trust for your needs during a confidential, no-obligation consultation.
Schedule your no-risk consultation today when you call us at 505-503-1637 or contact us online.
There are many different types of trusts you could form in Albuquerque, along with infinitely more ways to arrange and customize those trusts.
Nevertheless, nearly all trust formations follow a similar set of steps:
An Albuquerque setting up a trust attorney can assist you with all of these steps. Most critically, they will help you evaluate all of your options for creating a trust in light of your goals, your family situation, and your unique asset portfolio.
The type of trust you choose and the rules you set should be guided by what you want the trust to accomplish. For example, if your goal is to simplify estate planning while helping your estate’s personal representative expedite probate, then a simple revocable living trust could suffice.
But if your goal is to reduce income and estate taxes while supporting a charitable cause, you would need to look into more complicated charitable trust options.
Working with an experienced Albuquerque setting up a trust attorney ensures that you can understand all of the strengths, weaknesses, opportunities, and risks that could come with any given trust arrangement. Your attorney will then help you determine the ideal asset portfolio to include in the trust, with consideration for the assets’ long-term growth, liquidity, transferability, and potential future value to beneficiaries.
Your attorney will also help you determine who would be best to serve as trustee, whether that’s yourself, someone close to you, a trusted professional advisor, or a corporate services provider like a bank.
In addition, an Albuquerque setting up a trust lawyer can help you anticipate possible challenges and risks your trust could face.
For example, what if your asset portfolio doesn’t perform quite like you expected? Do you want to adjust the amount given to beneficiaries? Would you rather prioritize certain beneficiaries, and give the rest a nominal amount?
If you don’t take the time to consider questions like these, you or a future trustee may face an enormous amount of pressure in certain situations. As these challenges would involve some of your most valuable assets, it is prudent to consult with an experienced legal professional to ensure that you are prepared with strategic contingency plans.
For all of these reasons and many more, it makes sense to consult with an experienced Albuquerque setting up a trust lawyer. They’ll ensure that you understand all of the options you have — and the moments you may need to prepare for — to help your trust carry out its special purpose.
A trust is a type of legal entity, similar to a person, corporation, or LLC. Like all of these other entities, a trust can own property.
When it does, special rules or advantages might apply that would not be available to property owned by an individual.
There are three main parties involved in a trust:
Any person (or even another legal entity, in many cases) can create a trust. The only requirement is that they have to have full entitlement to the property they are transferring.
If the property is jointly owned, the joint owner must be listed as a co-grantor, or they otherwise have to explicitly permit the grantor to place it in trust.
In most cases, any competent adult individual can serve as a trustee. Or, the trustee could be a services provider, such as a bank, law firm, or financial advisor firm.
The rules on who can serve as trustee can depend on the type of trust that is formed. With a simple revocable living trust, for example, the grantor is allowed to serve as trustee.
They can also elect for a spouse, child, sibling, parent, or other closely related party to assume the role. With some types of irrevocable trusts, the trustee must be an uninterested party, meaning they cannot be the grantor or a beneficiary.
Often, a grantor will select a bank, financial advisory firm, or another corporate services provider to serve as trustee. This arrangement provides reliable continuity.
For example, you wouldn’t need to worry about one person becoming unable to manage the trust because they get sick or are incapacitated. Many firms offering trustee services are bound by internal policies and oversight roles, ensuring greater protections for the trust and its beneficiaries.
The tradeoff for these services is that a firm providing trustee services is likely to charge significantly more money than an individual filling the same role.
All trustees should be adequately compensated for their time and service, however. The amount that is considered appropriate could vary depending on the rules of the trust.
Sometimes, a trustee will take a percentage of the value of the principal assets used to fund the trust. Other times, they may instead retain a portion of the trust’s income, which could vary depending on the performance of trust assets like corporate stock.
They may also instead agree to a flat annual rate or lump sum. Ask your trustee what they expect to receive, and work towards an arrangement that they will find amenable — not just now, but also many years into the future.
You can refer to an Albuquerque setting up a trust lawyer for more information on who you should consider selecting as your trustee. They may also be able to provide guidance on how to best arrange for their compensation, as well as who could serve as successor trustees if a trustee is unavailable (or unwilling) to continue serving.
All trusts must have at least one beneficiary to receive the remainder of the trust (also called the residuary i.e., whatever is left over) after the trust’s term expires. Often, a trust will have multiple beneficiaries.
A grantor can usually select whomever they want to be a beneficiary, including themself. The only rule, typically, is that the grantor cannot serve as sole trustee and also be the sole beneficiary of the trust.
There may also be rules against who can be a beneficiary for certain trusts. For example, with a marital trust, the sole beneficiary should be the spouse of the grantor since the goal is to utilize the unlimited estate tax deduction for marital gifts.
Grantors can set standards of distribution for their trustee to instruct them on when to make a distribution. Beneficiaries can receive regular distributions from the trust, or they might receive occasional distributions at the trustee’s discretion.
Beneficiaries may also only receive distributions on special occasions, such as when the trust reaches a performance milestone or when a beneficiary graduates from college.
Worth noting, too, is that the trustee technically serves beneficiaries, and not just the trust itself. The trustee is accountable to beneficiaries for sound management of the trust and a good faith effort to provide distributions, according to instructions and standards left by the grantor.
Trusts can be made in a few different configurations, which affect how the trust operates and the benefits it is able to provide.
There are two major categories of trust, based on the grantor’s power to dissolve the trust and retrieve the assets they used to fund it:
Grantors have the choice to fund the trust now, at a later date, or after their death.
A living trust (AKA an inter vivos trust) is made during the grantor’s lifetime.
A testamentary trust is created by the grantor’s personal representative after they die. Note that only a living trust can allow assets to bypass probate. A testamentary trust’s assets first have to go through probate before the trust inherits them, as a beneficiary.
Finally, the trust can be considered as a pass-through entity for the purposes of taxation (a grantor trust), or it can file taxes as a separate entity (non-grantor trust).
The type of trust you form could be highly customizable based on the above variables. The decisions you make will depend greatly on your goals for the trust and the functions or advantages you want it to provide.
For example, if your goal is to protect assets from possible creditor claims against yourself as grantor or any beneficiaries, you would likely want to form an irrevocable non-grantor living trust. With this arrangement, the grantor has no legal right to the trust’s contents, making it difficult (or sometimes impossible) for them to force a distribution in order to pay off a debt.
A trust can take ownership of most assets, with a few exceptions.
The most common assets to use include:
However, a trust should not contain certain assets, under most circumstances. For example, retirement accounts, like 401(k)s and IRAs, could count their transference into a trust as a “cashing out” event, which could incur a significant penalty.
Transferring assets into a trust can be made easier with a designated trust account. The account can have a brokerage portfolio or savings balance transferred directly to it, for example.
For other assets, such as real property, the grantor will need to sign over the title to the ownership of the trust. They will need to record this transfer with the office of the county recorder where the property is located.
New Mexico recognizes oral trusts, in some situations, but a trust instrument is required for trusts involving the transfer of real property, such as a house.
It is highly recommended, however, that you put the entire trust agreement in writing and have it notarized. The trustee should also sign a form acknowledging their duties, including the responsibility they have to manage the trust in good faith on behalf of beneficiaries.
The trust document should clearly explain the terms of the trust, including how long it can last. The trust’s duration can be a set number of years (subject to applicable rules against perpetuity), or it can be set to the lifetime of an individual who is living at the time the trust was formed.
Grantors have the option to delay the formation of the trust until a later date, such as when they are incapacitated or when they die. They can also create rules that stipulate that the trust will only be formed in certain scenarios, which is known as a contingency trust.
Anyone forming a trust should carefully ensure that the rules they create for the trust are enforceable and compliant with all relevant state and federal laws. They can refer to an Albuquerque trust law firm for guidance on the best arrangements to make while remaining within the boundaries of the law.
If you need assistance and guidance with setting up a trust in Albuquerque, come to New Mexico Financial Law. We are ready to help you review all of the types of trusts available and select the right arrangement for you, your family, and the future you want to leave behind.
Schedule a no-obligation consultation today when you call our firm at 505-503-1637 or contact us online.
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