Albuquerque Discretionary Trust Lawyer

A discretionary trust gives a trustee complete and total discretionary powers over when — or even if — they will make distributions to the trust’s beneficiaries. Giving a trustee full discretion can serve to protect the trust’s contents from creditor claims.

Families can also use discretionary trusts as a means to restrict distributions to beneficiaries, which can be beneficial when the beneficiary is young or has demonstrated that they have challenges with financial management. Discretionary trusts may even extend further protections; it is an area of the law that has been tested continually in the courts.

New Mexico Financial & Family Law can provide you with an Albuquerque discretionary trust lawyer to go over your options. They’ll help you decide on the right trust to create, with consideration for your unique goals and financial situation.

Find out the best way to structure your trust during a confidential, no-obligation consultation. Schedule your appointment at our Albuquerque discretionary trust law firm today when you call us at 505-503-1637 or contact us online.

Topics to Discuss With Your Albuquerque Discretionary Trust Attorney

When they are created with care and attention to detail, a discretionary trust can provide robust protections for assets. However, a discretionary trust in Albuquerque is not a “magic bullet” for avoiding all debts or other money-related legal troubles.

You should only create a discretionary trust from a position of good faith — which means that it should never be used to house assets that have, technically, been promised to somebody else.

Further, you should recognize that the very nature of a discretionary trust means that your trustee wields substantial power. You should appoint a trustee you can feel confident in; someone who will follow through with your intentions once they assume control.

You should even be prepared for the trustee to deny you funds from the trust when a sound reason presents itself; after all, this is the entire purpose of giving them discretionary powers.

New Mexico Financial & Family Law can help you select a reliable trustee and guide their actions with clear standards. While we cannot guarantee full asset protection from any trust, we can maximize the likelihood that your trust is able to help you achieve all your intended goals.

If you want your trust to benefit future generations, we can help you feel confident that your wishes will be well understood and carried out long after you are gone.

To help you create a trust with the right mindset, be prepared to answer questions like the following when you meet with your Albuquerque discretionary trust attorney:

• What assets do you want placed in the trust? What is your goal for removing them beyond your ability to reliably access them? Do you feel comfortable giving up this level of control?
• What standards did you want to suggest to your trustee to help them decide when to (or when to not) distribute money from the trust? What about their standards for maintaining the trust’s value and the property within the trust? For example, would they be allowed to sell a piece of real property held in the trust?
• Do you have specific concerns you want to address by creating a discretionary trust? For example, are you worried about future debt? A beneficiary who might be irresponsible? Etc.
• How long do you want the trust to last? Do you want the trust contents to be distributed completely to non-charitable beneficiaries when the term ends? Or would you rather it goes to a charitable cause (which can provide tax advantages)?
• Do you want to fund the trust in the near future? Or would you rather have it funded at the time of your death?
• If it is established during your lifetime, how do you want the trust to interact with other parts of your estate? For example, when you die, do you want your estate to “decant” entirely into the discretionary trust? Or would you rather have the discretionary trust remain the way it is?

An Albuquerque discretionary trust lawyer can help you determine the best way to structure your trust, based on your answers to questions like these. They can also help you select a dependable trustee. In addition, they can set up a succession of trustees, including (if you like) a trust protector.

You can set rules that allow the trust protector to remove a trustee if the trustee is acting contrary to their stated duties.

How Does a Discretionary Trust Work?

A discretionary trust follows all of the same rules as a non-discretionary trust, which are as follows:

• The trust owns property that was transferred to it by the trust creator, who is called the grantor (sometimes also called a settlor or trustor)
• A trustee is put in charge of managing the trust’s contents, including the payment of distributions to beneficiaries
• Beneficiaries receive distributions (i.e., cash payments), according to the rules of the trust

What makes a discretionary trust special is that a trustee does not have to pay out anything to beneficiaries. They can decline to make a distribution if they feel like there is a valid reason not to do so.

Or, they can state that there was no valid reason to make the distribution, according to their own discretion.

Why would anyone give their trustee this level of power? The answer: because it removes a beneficiary’s guaranteed financial interest in the trust.

In the words of the Office of Government Ethics (OGE): “A discretionary trust does not give the beneficiary an enforceable right to payment.”

Many laws and court rulings are concerned with how a person (or, in some cases, a business) handles their own property interests. Usually, someone is said to have an interest in a trust because, as a beneficiary, they are supposed to be guaranteed some form of distribution from it.

For example, a non-discretionary trust might require that a trustee is to transfer $10,000 to the beneficiary every six months.

If the beneficiary owes money to someone, then their interest in the trust could be considered as an asset. Accordingly, a creditor could obtain a court order forcing the beneficiary to ask for a distribution or to promise their next distributions to the creditor until their debt is paid.

With a discretionary trust, a lack of interest means they are merely connected to the trust, but they have no guaranteed payment waiting for them.

In U.S. v. Delano, a 2001 U.S. District court case that took place in Colorado, the presiding judge wrote that “where a trustee is given discretion to refuse all payments to the beneficiary, the beneficiary clearly has a mere expectancy rather than a property interest.”

What this means, in a nutshell, is that people looking for money from the beneficiary will have to look for it somewhere other than a discretionary trust, in most cases.

To Provide Asset Protection, Albuquerque Discretionary Trusts Need an “Ascertainable Standard”

Grantors need to be very careful and precise about how they word their trust’s language if their goal is to give trustees absolute discretionary powers over distribution.

The same U.S. District Court case (U.S. v. Delano) found that the trust they were looking at did not provide the intended asset protections for beneficiaries. In some ways, that decision came down to the choice of one word “shall.”

James Delano and David Delano, the case’s two defendants, alleged that they had no interest in a trust created by their mother. The trust was created by a testamentary provision in the mother’s will, which contained the following sentence:

“During my son’s lifetime, my trustee shall pay to or apply for the benefit of my son so much of the income or principal, or both, as my trustee in its sole and absolute discretion shall deem necessary or advisable for his maintenance, health, education, comfort and welfare.”

The assigned U.S. attorney, representing the U.S. as plaintiff, argued that there weren’t any specific instructions to guide the trustee as to when — or when to not — make a distribution. In addition, the text said that they “shall pay,” rather than “may pay.”

The attorney argued that this implied that the trustee only had discretion as to whether to pay the beneficiaries from the “income or principal, or both.”

What was missing, in this case, is what’s known as an “ascertainable standard” for a distribution. Any trust intending to be labeled as a discretionary trust should take care to provide instructions to a trustee to help them decide when a distribution is appropriate.

The trustee then has a good-faith obligation to follow these standards (see NM Stat § 46A-8-814) — even when the beneficiary protests that doing so would jeopardize the asset protection they hope to maintain.

Can a Discretionary Trust Protect Against Divorce or IRS Claims?

It is generally not advisable to use an Albuquerque discretionary trust for either purpose.

For divorce, consider first that New Mexico is a community property state. Spouses are entitled to equal access to all property that is not determined to be separate.

Property is only separated automatically under certain situations, such as if a spouse wholly owned the property before the marriage or if it was promised exclusively to them in an inheritance. In other cases, both spouses have to agree to designate certain property as separate.

Because of these laws, a discretionary trust can only be funded with property designated to be separate, unless it is both spouses’ wish and desire for their joint property to go into the trust. In addition, a court may order that someone owes their spouse some other property that they can access in order to split property fairly.

Similarly, an Albuquerque discretionary trust may not be able to protect you against debts owed to the Internal Revenue Service for back taxes or penalties. If someone legitimately cannot access the contents of a discretionary trust to pay back a debt, the IRS might instead penalize the person directly for non-payment, failure to comply, and/or a bad-faith effort to make the funds inaccessible.

Albuquerque Discretionary Trusts Can Prevent Abuse of Funds by Beneficiaries

Some discretionary trusts are set up not to protect the assets but, rather, to protect the beneficiary from the consequences of their own actions. In these cases, the beneficiary may otherwise end up harming themselves — or their long-term financial prospects — by having access to too much money at once.

For example, a discretionary trust may state that a trustee can decide to not give a distribution if a beneficiary isn’t gainfully employed and/or has not completed their expected level of schooling. Another provision could require that the beneficiary has passed drug screenings or that they don’t have any criminal charges pending against them.

These provisions can keep the beneficiary on the “straight and narrow” by discouraging undesirable behaviors while rewarding positive ones. Not only that, but they can prevent the worst-case scenarios from playing out when the beneficiary does stray off the path.

Giving a trustee the power to cut off funds can keep them from perpetuating a drug habit, gambling addiction, or propensity towards criminal behavior, for instance, since they don’t have the prospect of easy funds to “bail them out” should they get into trouble.

How Does a Spendthrift Clause Affect an Albuquerque Discretionary Trust?

Spendthrift clauses forbid a beneficiary from transferring their future interest in a trust to another party. This provision can keep someone from borrowing money by using their interest in the trust as collateral.

It can also prevent a form of wage garnishment that can come from placing a lien or collections action on future trust distributions.

The idea of a spendthrift clause is to prevent someone from leveraging their trust distributions all at once rather than one at a time. These precautions may not be necessary with a discretionary trust since there is no genuine “interest” in the beneficiary’s distributions.

Nevertheless, it can be prudent to include both discretionary powers and a spendthrift clause if the grantor’s goal is both asset protection and the prevention of misuse of trust funds.

Protect the People and Assets You Care About With an Albuquerque Discretionary Trust Law Firm

Whether your goal is to protect your legacy, your beneficiaries, or something else you value, a discretionary trust may be able to provide you with the advantages you seek. Reach out to an Albuquerque trust lawyer today to get advice and begin setting up the perfect trust for your objectives.

Schedule a no-obligation consultation with New Mexico Financial & Family Law today to discuss your possible discretionary trust when you call us at (505) 503-1637 or contact us online.