Trust planning can be essential to estate planning for some households. If your goal is to avoid probate, to guarantee continuous management of assets, or to leave behind a legacy that you’re proud of, the right trust can help you succeed.
Reach out to an Albuquerque trust planning lawyer to learn the types of trusts you could form and which ones would be best suited for your unique objectives. With the right preparation, your estate could build the foundation for a lasting legacy, ensuring your loved ones are cared for and your values are well-represented.
Find out more about trust planning and how it could help your family when you call New Mexico Financial Law at 505-503-1637 or contact us online to schedule a no-obligation case review.
Trust planning involves selecting a trust (or multiple trusts) that can help you accomplish your legal and financial goals. Then, you can prepare for trust formation — whether that happens now, at a later date, or after your death.
An Albuquerque trust planning attorney can help you with the process, including these essential steps:
When you meet with an Albuquerque trust planning lawyer at New Mexico Financial Law, they will help you understand all of these steps in greater detail. With their assistance, you can review all of your options for forming a trust and select the perfect one in light of your unique asset portfolio, family situation, and long-term goals.
With an attorney’s help, you can start planning for the future you’ve always dreamed of.
All trusts are formed by a grantor (sometimes called the trustor or settlor). The trust is managed by a trustee. A grantor can serve as trustee, in some situations, but they may be required to select someone else as their trustee in others.
The trust has designated beneficiaries who receive distributions from the trust, according to the rules set by the grantor.
There are many different types of trusts, all of which follow this general arrangement. Planning the optimal trust for your situation requires you to reflect upon your other estate plans and your ultimate objectives.
There are two main choices to consider: creating a living trust or planning for a testamentary trust. If you decide to create a living trust, you then have two more options: a revocable trust or an irrevocable trust.
A living trust (also called an inter vivos trust) is created during your lifetime. It can be funded and become effective immediately, or you can delay its creation until a later date.
You can even create instructions for a contingent trust, which means that it would only be formed under special circumstances. An example of a contingent living trust would be a trust that is only formed when the grantor becomes medically incapacitated.
A testamentary trust, on the other hand, is created after the grantor’s death. Language in the grantor’s will instructs the estate’s personal representative to form a trust from estate assets.
The trust-forming provision may also name a trustee and set forth specific rules for how the trust should operate.
One key difference between a living trust vs. a testamentary trust is that assets in a living trust bypass probate, whereas those in a testamentary trust do not. Therefore, if one of your goals when planning a trust is to avoid probate, you will want to fund the trust at some point prior to your death.
During probate, creditors and others are allowed to make claims against the estate. The estate’s representative may also end up taking some percentage of assets for administration and personal compensation costs.
In addition, the assets that go through probate may be publicly disclosed. For all of these reasons, your trust planning may involve seeking ways to avoid probate.
A living trust can be either revocable or irrevocable.
Grantors can modify or dissolve a revocable living trust at any time. This provides them with peace of mind, knowing that their assets can be retrieved in the event that plans change.
An irrevocable living trust can only be modified or dissolved with unanimous consent among all beneficiaries. Even then, a court order may be needed.
While revocable trusts offer flexibility, irrevocable trusts can provide specific advantages, such as asset protection, tax-advantaged charitable giving, or support for a special needs family member. The capabilities of the irrevocable trust depend upon its structure and whether it was formed in compliance with certain laws.
Note that all living trusts become irrevocable after the grantor’s death.
Grantors can optimize their trust by making sure that the assets they select fit within their ultimate goals.
A special needs trust, for example, can potentially create penalties and tax issues if it generates too much income. Accordingly, the grantor should consider funding it with assets that do not generate substantial income.
When planning for a grantor-retained annuity trust (GRAT), on the other hand, the grantor will want to choose assets that appreciate at a high rate. This ensures that the remaining beneficiaries receive the most value possible.
Since their taxable proceeds are calculated many years in advance, growth that beats the IRS’s “hurdle rate” used to predict returns means tax-free gains.
As another example, asset protection trusts should hold a substantial portion of the grantor’s assets since they act as a hedge against liability. The grantor may want to consider putting real property, such as rental homes, in the trust to prevent a creditor claim from targeting some of their most valuable investments.
Assets for which you want to retain free and flexible use of, like a personal residence, should ideally be placed in a revocable trust and not an irrevocable one — unless there is a specific advantage to doing otherwise, such as obtaining asset protection or estate tax savings.
An Albuquerque trust planning attorney can review the assets in your portfolio and provide advice for which ones make the most sense to place in trust, given your unique goals.
A grantor can serve as a trustee in many types of trusts, even irrevocable ones. However, they may want to consider appointing someone else as the trustee if their trust arrangements are relatively complicated.
A trustee must ensure that all trust rules are followed and that distributions are made as required. Your trustee can be someone you know personally, like a nephew; a trusted advisor, like an attorney; or a corporate services provider, like a bank.
Grantors should take the time to name at least one successor trustee, especially if the grantor intends to serve as the primary trustee. This “backup” trustee steps in when needed to manage the trust, including when the grantor (or primary trustee) is incapacitated or cannot be located.
Grantors have a wide range of options for instructing their trustee as to how and when beneficiaries should receive trust distributions. The only legal requirement is that there must be at least one beneficiary to receive the remainder of the trust’s assets when its term expires.
There are four main types of distributions that can be made to a beneficiary:
Remember that a revocable trust can have its beneficiary arrangements modified at any time. Similarly, a testamentary trust can be changed any time before the death of the grantor by changing the language of a will (or executing a codicil to amend one).
However, for irrevocable trusts, it can be difficult — or nearly impossible, in some cases — to modify the beneficiary arrangements. Accordingly, think carefully about who you want to designate as a beneficiary of an irrevocable trust as well as the standards of distribution that you want the trustee to follow.
Estate planning usually involves creating a will, selecting a personal representative (AKA an executor), naming a guardian for minor dependents, and arranging for transfers that occur outside of the will, such as transfer-upon-death accounts.
Optionally, someone can create a living will, which explains the types of care they want to receive should they become medically incapacitated. They can also assign a power of attorney to someone, giving them the ability to make medical decisions or conduct financial transactions as their agent.
Trusts can fit handily within estate planning, depending on the goals you want to accomplish. For example, you can use a trust to retain your estate property after you die.
Whether you create a living trust or a testamentary trust, the assets you place within it can remain for a period of your choosing. This arrangement can provide advantages compared to a will, which requires that all estate property be distributed immediately after probate concludes.
Alternatively, a living trust can immediately distribute trust assets after the death of the grantor, rather than having to wait for probate to conclude.
Trust planning can also help you eliminate the need for giving financial power of attorney, in some cases. A trustee (or successor trustee) is permitted to step in any time the grantor requires, including when they are medically incapacitated.
As part of trust planning, an attorney can help you anticipate possible estate taxes, income taxes, or generation-skipping transfer taxes that could be encountered by you, your beneficiaries, or your estate representative.
As an example, revocable trusts (in most cases) require the grantor to declare all trust income on their yearly tax return as their own. A charitable remainder trust, on the other hand, acts as a tax-exempt giving vehicle, meaning it defers taxes until trust assets are distributed to non-charitable beneficiaries.
Book an appointment with our Albuquerque trust law firm to understand how taxes and other considerations like these might affect your overall estate plan.
New Mexico Financial Law has assisted many families in Albuquerque with trust formation, estate planning, business continuity planning, and more. A trust might be the ideal mechanism to help you achieve your goals, so reach out to our Albuquerque trust planning law firm to learn more about the opportunities that could await.
Schedule a no-obligation consultation today when you call us at 505-503-1637 or contact us online.
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