Forming a revocable living trust can make it easier for you to manage an asset portfolio, while also providing seamless management of the assets in the event that you become incapacitated or die.
A trust is a legal arrangement that can own property, just like you or a business can. Once assets are signed over to a revocable living trust, you, as the trust creator, can still access them and adjust the rules your trustee uses to manage them.
You can also serve as trustee, during your lifetime, and assign a co-trustee or successor trustee in the event you lose the capacity to serve.
Speak with an Albuquerque revocable living trust lawyer to discuss your options and opportunities for trust formation. You can call New Mexico Financial & Estate Planning Attorneys at 505-503-1637 or contact us online to schedule a no-obligation consultation today.
A revocable living trust offers both security and flexibility. At the same time, it creates a high level of responsibility for both the grantor and the trustee.
With valuable assets consolidated into a single legal entity, there is a strong need for clear rules, a continuity plan, and a long-term management strategy.
Working with an Albuquerque revocable living trust attorney can help you arrive at the best arrangements and strategies for your unique situation. Your attorney will carefully review the portfolio you are thinking about placing into a trust, along with any other relevant factors, such as who you want to receive distributions from the trust when you die.
They will then listen intently to your goals and recommend specific ways you could structure your trust in order to best achieve them.
Collaborating with an Albuquerque revocable living trust lawyer can not only make it easier to form a trust, but it can also ensure that you are satisfied with the way your trust operates for many decades to come.
Your Albuquerque trust attorney can help you with the following tasks:
As you can see, an Albuquerque revocable living trust lawyer can assist you at all stages of your trust: from planning, to creation, to support through the remainder of your lifetime — and beyond.
A trust involves a unique relationship between three main types of parties:
A trust cannot exist without assets to fund it and beneficiaries to receive those assets at a later date. The trust is created when it receives at least one asset to own.
The grantor can use almost any asset to fund the trust, including:
Once these assets are in the trust, they become the responsibility of a trustee until they are distributed in full to beneficiaries, dissolving the trust.
The “living” part of a revocable living trust stems from the fact that the trust is created while the grantor is still alive. This quality stands in contrast to a testamentary trust, which is only created after the grantor dies.
The key quality to a revocable living trust is that the grantor maintains a high degree of control over the trust for the remainder of their life — unless the trust is modified to take away this control.
A grantor can revoke or modify the trust using a procedure described in the trust, or they can provide written notice to the trustee (if someone other than themself) and their beneficiaries (NM Stat § 46A-6-603).
Note that a properly executed will or codicil can invalidate the terms of a trust if the document makes reference to property that is held in the trust. The most recently created document always takes priority in determining how the property must be handled.
A grantor is also allowed to hold the role of trustee or co-trustee for a revocable living trust. The only exception is that they are not allowed to be a sole trustee if they are also the sole beneficiary of the trust (NM Stat § 46A-6-402).
There can also be multiple trustees. The rules of the trust determine how these trustees interact and make decisions.
For example, a trustee may have coequal power and be able to force a vote on an issue when a decision needs to be made. Or, one trustee could have a higher degree of power and only ask for their co-trustee’s input when they want their guidance or assistance.
Grantors can also appoint a successor trustee, who would step in in the event that a trustee loses capacity. For revocable living trusts, it is highly recommended to name at least one successor trustee if the grantor is going to otherwise serve as trustee.
That way, if the grantor dies or otherwise loses the capacity to manage the trust, a successor can step in.
When the grantor creates a trust, they state how long the trust is going to last. Because New Mexico has a rule against perpetuities (NM Stat § 45-2-901), the trust is allowed to last up to 90 years from the date of its creation or up to 21 years after the death of a specific named person who was alive at the time the trust was formed.
Every trust has to eventually pay out the remaining assets within it when its term expires. Beneficiaries may also receive distributions earlier than this, according to the grantor’s instructions given to the trustee and the rules set by the trust.
Some trusts pay out an annuity to a beneficiary at least once a year, for example. Others may only pay out a distribution after a special milestone has been hit, such as a marriage, graduation, home purchase, or birth of a first child.
A common revocable living trust arrangement is for it not to pay any distributions until after the grantor dies. The trust may then immediately divide assets among beneficiaries.
Alternatively, the trust could remain intact for several more years after the death of the grantor, allowing it to continue to earn interest. The trust then might pay out regular distributions or wait until the expiration of its term.
One of the most beneficial qualities of a revocable living trust is that it allows for continuous management of assets, even in unexpected situations.
Say that a person slips into a medical coma or disappears while traveling abroad. Normally, this individual would have had to authorize financial power of attorney to someone before the event occurred, allowing their agent to step in and manage finances in their absence.
If the person did not issue a power of attorney authorization, someone would need to petition a court to obtain conservatorship over the estate. The court may require the petitioner to wait for a period of several days to weeks to ensure that the person is not found or does not suddenly recover.
The petitioner then has the burden to prove that waiting would cause irreparable harm; otherwise, they are forced to wait.
In the meantime, the incapacitated or missing person’s estate could be suffering financial consequences. For example, a mortgage may need to be paid, or there may be a balance owed for a child to continue attending school.
With a trust, a successor trustee can step in to manage the trust’s finances without the need for court authorization or any further documentation. A trustee could disburse funds to family members or directly to service providers, for example, to avoid a negative consequence.
The trustee also has all of the instructions they need to understand the grantor’s wishes and obey them.
Assets transferred to a living trust are considered to exist outside of the grantor’s estate, as far as probate is concerned.
Without this arrangement, all estate assets must first go through probate before they can be distributed to heirs. The personal representative of the estate has to first pay off all debts and creditor claims, and there may be other administrative expenses.
This process can lead to delays and unexpected deductions from the estate’s total value.
With a revocable living trust, assets can remain in the trust after the death of the grantor for the remaining duration of the trust’s term. Or, they can be distributed immediately after their death, without the need for court approval.
This arrangement gives the trustee much more power and the capability to make speedy decisions, compared to waiting for probate to conclude. Also, with an estate that is disposed of entirely through a will, assets have to be distributed to heirs as soon as possible after probate concludes.
A revocable living trust can set rules for the assets to remain in trust for a longer duration, which could have benefits for legacy planning or asset growth.
These capabilities make a revocable living trust a useful addition to a will within an estate plan. Also, if the grantor wants any property not contained in the trust to be transferred to it after their death, they can include a “pour-over” provision in their will, which allows all remaining property to “pour” into the trust.
Whether the trustee is a grantor, a family member, or a third party, they have a legal obligation to obey the rules of the trust and manage trust assets soundly. The trustee is accountable to the grantor, the beneficiaries, and the trust itself. If they act contrary to the interests of any party, they could be held liable for their actions.
For this reason, a grantor should take care when serving as trustee of their own trust. They should not violate the rules they set for the trust unless they first amend the trust according to the process set forth within the trust’s forming document (called a trust instrument).
They can also revoke the trust, which is preferable to taking actions that could otherwise be interpreted as a breach of their fiduciary duty to beneficiaries.
Because of their ability to access the trust’s principal and amend the trust at will, a grantor is usually designated as the party of interest when it comes to filing taxes. The grantor will file an additional form reporting the trust’s income and losses as their own each year, along with a record of any distributions.
When the grantor dies, the trust switches to an irrevocable trust and must start paying taxes as a separate entity. The successor trustee will then have to split the status of the trust in the year when the death occurred, having an executor report some of the trust income on the decedent’s final estate return while recording the rest on a new return under a new tax identification number (TIN).
Refer to a professional accountant and an Albuquerque revocable living trust law firm for more information on how to handle tax obligations.
New Mexico Financial & Estate Planning Attorneys has helped many families form revocable living trusts to protect their estate and give their loved ones peace of mind. These legal arrangements can complement a will, forming an airtight estate plan — one with continuous management of assets for the benefit of the grantor’s family, their loved ones, and their legacy.
Get started planning your own revocable living trust today when you call our Albuquerque offices at 505-503-1637 or contact us online to schedule a no-obligation case review.
CallCall now to schedule your consultation 505.503.1637
Office