If someone wants to set aside some of their assets for a special purpose after their death, rather than distribute them immediately, they can require that a testamentary trust be formed as part of their will. Testamentary trusts can take possession of assets just like a person, distributing them later, according to the terms of the trust.
This arrangement can be beneficial if the creator of the testamentary trust wants to delay the distribution of the assets for a certain reason or if they have a complex strategy in mind for them, such as donating to charity in a tax-advantaged way.
Testamentary trusts require less up-front work and expense compared to a living trust, allowing households to plan for their future without incurring substantial immediate costs. At the same time, a testamentary trust is automatically set in motion after death, so the trust creator should take care to review the terms of their trust and ensure it aligns with their wishes.
They should also periodically review and update their testamentary trust formation plans, as needed.
An Albuquerque testamentary trust lawyer can help you and your family plan for the future by considering your options within the perspective of your overall estate plan. An attorney at New Mexico Financial & Estate Planning Attorneys listens closely to your goals, reviews your estate plan and asset portfolio, and then recommends the ideal language to use for setting up your testamentary trust.
Learn more about how to form a testamentary trust when you call our Albuquerque law firm at
505-503-1637 or contact us online to schedule a no-obligation case review.
Alongside a will, a testamentary trust can help you plan for your legacy and your loved ones’ financial future. Depending on how you set up the trust, it can benefit multiple generations, or it can momentarily delay the distribution of your estate’s assets.
The capabilities offered by a testamentary trust can vary greatly, based on the language used to create it. Working with an Albuquerque testamentary trust attorney ensures that you get the chance to review all of your options.
You can then select the perfect arrangements for your family and your long-term legacy planning goals.
Some of the tasks an Albuquerque testamentary trust lawyer can help you with include:
Testamentary trusts add certainty to your estate plans, but only if you are certain that the right language and preparation is in place. Working with an Albuquerque testamentary trust lawyer at New Mexico Financial & Estate Planning Attorneys can help ensure that you have everything in place and that your loved ones will be well taken care of.
A testamentary trust activates through a provision of your last will and testament (hence, its name). Your estate’s personal representative funds the trust with assets from your estate.
All of the assets — and the will itself — must first be processed through probate before the trust can be funded. Like other trusts, a testamentary trust has three main parties:
Normally, a trust is directly created by the grantor (or an agent) during their lifetime. With a testamentary trust, the estate’s personal representative has the authority to fund the trust in the grantor’s stead.
The trustee then becomes responsible for managing the trust on behalf of its beneficiaries.
Since the grantor is no longer alive when the trust is formed, all testamentary trusts are irrevocable. That means they cannot be changed once formed, except sometimes by unanimous consent among beneficiaries and/or a court order.
Once the trust is funded, the trustee immediately assumes control over its assets. The trust lasts for the entire duration of its term, which is set by the grantor.
The term can be set to a number of years, or it can be set to the lifetime of someone who was alive at the same time as the grantor.
A trustee serves as a fiduciary, meaning they are legally bound to perform the following duties:
Different advantages can be obtained from a testamentary trust, depending on how it is structured and what instructions are given to the trustee. Some of the most common benefits that can be arranged include the following.
Assets distributed through a will could be immediately sold by the person who inherits them. In some cases, family members may jointly inherit a valuable asset (e.g., a vacation home).
While the family could make arrangements to share the home asset equally, they are perhaps more likely to instead liquidate the asset so they can split the proceeds between them.
If a grantor thinks that the asset would be better left intact for a certain number of years, they can instead will the asset to a testamentary trust and delay when beneficiaries take full ownership of it.
This arrangement could allow an asset like a stock portfolio to continue appreciating, generating possible income for beneficiaries in the process. Or, it could simply preserve the asset for another generation, waiting until some time has passed before it could be liquidated by its eventual beneficiaries.
As an added benefit, assets held in a testamentary trust can be shielded from creditor claims against beneficiaries. While the grantor’s own debts have to be paid from their estate before the trust is funded, a separate claim against a beneficiary could mean that a distribution goes to a creditor instead of an heir.
Creating a testamentary trust can, therefore, provide advantages for beneficiaries who are heavily in debt or otherwise facing financial difficulty. Additional asset protections could be obtained by giving the trustee discretionary powers or including spendthrift provisions in the testamentary trust.
A grantor can leave all of the testamentary trust to a charitable cause, but it’s more likely that they would want to split the trust’s assets between loved ones and a charity.
Creating a testamentary charitable lead trust or charitable remainder trust from an estate can accomplish these goals. With a charitable lead trust, the charity receives steady payments for a set period, and then the non-charitable beneficiaries receive the remainder.
A charitable remainder trust follows the opposite order: non-charitable beneficiaries receive up-front payments, and then the charity receives the rest after a certain number of years have passed.
There are pros and cons to each, but the common thread is that the testamentary charitable trust can offset taxes on its income while potentially also reducing estate taxes, as well. Refer to an Albuquerque testamentary trust lawyer if you would prefer arranging your trust to split distributions between a charity and your family.
Minors cannot legally inherit property (unless they are emancipated). Instead, the money has to go to a legal guardian, which can be a parent or a court-appointed guardian.
While the assets are supposed to be protected, the guardian has discretion over how to use the funds. They could, therefore, justify freely spending the assets if it benefitted the child in some way — in the meantime, the child could inherit next to nothing or nothing at all.
To ensure that a minor receives their inheritance, a grantor can create a testamentary trust to delay it. The minor may be able to have funds released to a guardian or paid directly by a trustee for specific uses like school.
They can then receive the rest of their inheritance when they turn 18. Alternatively, they could receive their distribution when they reach a certain milestone, such as graduating from college.
Whatever the arrangement, the trustee is required by law to honor it, giving the minor greater protections from guardians who might spend their inheritance frivolously.
Some beneficiaries may currently be receiving benefits for a disability or subsidized long-term care. Since these programs are based on their income and countable resources (i.e., assets), leaving them an inheritance could jeopardize their eligibility for public benefits.
Creating a testamentary trust instead can help provide for them without hurting their ability to qualify for the aid they depend upon.
If you have beneficiaries who have trouble managing money or who have problems with things like alcohol addiction, giving them all of their inheritance at once could end up causing them more harm than good. A testamentary trust could be used to instead pay out smaller distributions over an extended period, or it could hinge the beneficiary’s distribution on something like a clear drug screening.
For greater protection, the trust could include a spendthrift clause, which prevents the beneficiary from using their future interest as collateral for a loan or paying off a debt.
Testamentary trusts can be used to set aside certain assets until a surviving spouse dies. The spouse may be able to draw income from the trust, but the assets will eventually go to the grantor’s chosen beneficiaries.
This situation could be advantageous in cases where the surviving spouse remarries. Since the spouse is entitled to use inherited property as they see fit, they could promise assets to their new family members, or spend them in their entirety.
Creating a qualified terminal interest property (QTIP) trust or bypass trust can prevent this from happening, while still supporting the surviving spouse for the remainder of their life.
The trustee is responsible for ensuring that the trust reports its income each year. Note that all income is taxed at the same rate, which is the highest possible rate.
If trust income taxes concern you, consider ways to offset them, such as through charitable giving. Note, however, that there will be a delay in when the new trust can qualify as a “split interest” for charitable purposes, under IRS rules.
A grantor has the option to change an existing inter vivos trust through a provision in their will. The provision could “pour over” more property from their estate into the trust, or it could radically modify the way the trust operates.
For example, in an A-B trust arrangement, a joint living trust usually splits off into two testamentary trusts: a marital trust and a bypass trust. Get in touch with an Albuquerque testamentary trust law firm to learn more about your options for modifying an existing trust or creating entirely new trusts through a testamentary provision.
New Mexico Financial & Estate Planning Attorneys can help you arrange for the perfect future you’d like to see using a testamentary trust. Our Albuquerque trust law firm has decades of collective experience assisting clients in estate planning, trust formation, and preparing for the legal and financial obligations of their estate.
Find out how we can help you plan for a bright future for your loved ones when you call 505-503-1637 or contact us online to schedule a confidential consultation.
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