A testamentary trust will names a trust as the beneficiary of all (or most) of an estate’s property. The estate’s personal representative must first submit the will to probate and go through the probate process, which includes settling all debts owed by the estate and handling other administrative duties. Once probate has concluded, the estate representative transfers the estate’s assets into the ownership of a new trust. A trustee (who can be the same person as the estate representative) then assumes control over the trust’s management and operation.
Forming a trust with estate property can be the best decision for certain estates, especially those involving complex plans for the future or those that want to establish rules for making distributions to beneficiaries. Unlike a regular will, which distributes 100% of estate property to beneficiaries once probate has concluded, a testamentary trust can hold onto assets for an extended period of time — up to 90 years or more, per state law.
If you want professional and experienced legal assistance with making these types of arrangements, you can reach out to an Albuquerque testamentary trust lawyer. They can ensure that your arrangements reflect your wishes and can be legally enforced under state and federal laws.
Call New Mexico Financial Law at 505-503-1637 or contact us online to schedule a no-obligation consultation with an experienced Albuquerque testamentary trust will lawyer today.
A testamentary trust is a legally recognized entity that can own property, just like a person or a business. They are created and governed by trust formation documents, which can be incorporated into a will. Or, the will can reference trust formation instructions documented separately from it.
In effect, a testamentary trust will actually involves two separate specialized legal contracts: the will itself, and the formational trust language. The person creating their will (known as the “testator”) must be careful, precise, and strategic in how they write both. Any mistakes or lack of clarity in their language could cause their trust formation plans to fail. The personal representative would then have to either use alternate plans mentioned in the will — if any exist — or distribute the estate to the testator’s next-of-kin using the state’s rules for intestate succession.
In other words, getting the language of your will or testamentary trust formation wrong could jeopardize all of your plans for your estate. Your loved ones and the causes you intended to support could suffer, in turn.
To prevent this worst-case scenario, you can refer to an Albuquerque testamentary trust will lawyer for guidance. They can help you create a legally sound and properly executed will, one that carefully uses its language to maximize the chances that your goals for your estate can be met.
When consulting with your Albuquerque testamentary trust will lawyer, they can help you make decisions by answering questions like the following:
Your Albuquerque testamentary trust will attorney can help you examine these questions — and many others — as you form strategic plans for your estate.
At New Mexico Financial Law, we always take the time to listen and learn about your unique situation before making recommendations. We can carefully review your asset portfolio and current estate plans, comparing them to your goals to determine the best strategy for preparing your legacy. Our objective is always to leave you feeling confident and optimistic, knowing that your loved ones will be cared for thanks to the plans you put in place.
A will is a document that nominates an estate representative (also sometimes called an executor or administrator) and provides instructions to distribute the creator’s assets.
When someone creates a testamentary trust will, the only major distinction is that the estate representative is instructed to create a new trust and fund it with assets from the estate. The testamentary trust, in other words, is the main (sometimes the sole) beneficiary of the estate.
Assets held in a testamentary trust become the responsibility of the trustee, who is also appointed by the testator. The trustee can be the same person as the estate representative, another person, or a business like a bank, law office, or financial management institution.
The trustee must dutifully follow the terms of the trust, according to the instructions left by its creator.
Like a will, a testamentary trust has designated beneficiaries. Unlike a will, the trust is allowed to hold onto assets for an extended period of time.
The maximum period of time a testamentary trust formed in Albuquerque is allowed to retain its assets, per state law (NM Stat § 45-2-901), is up to 90 years after its creation, or up to 21 years after the death of an individual who was alive at the time the trust was created. After this period has passed, the trust is obligated to vest — or pay out — the remainder of its assets to one or more beneficiaries.
The settlor of the trust can instruct their trustee to distribute assets at any time before this point, however. In the case of some testamentary trusts, the trustee may wait just a few weeks before distributing assets in full. Other times, the trustee may pay out a small amount to beneficiaries immediately, then dole out the remainder over an extended period of time. This longer-term strategy allows the trust to generate income from its assets over an extended period.
A trustee may also be given special instructions for when to make a distribution to a beneficiary. For example, a testamentary trust formed for the sake of minor beneficiaries may distribute their entire share once they reach a designated age, such as eighteen or twenty-one. In other cases, the beneficiary’s distribution may be contingent on a certain condition being met, such as their graduation from a four-year degree program.
The ability to flexibly decide when distributions should be made is a major advantage of testamentary trusts. A settlor can even give their trustee the final say on when a distribution may be appropriate, allowing them to delay distributions until such time as the beneficiary (and the trust itself) can obtain the maximum benefit.
An executor and a trustee share a similar role with similar responsibilities.
The executor (often called a personal representative by statutory law) and the trustee both have a fiduciary duty. A fiduciary has a legal obligation to make sound decisions on behalf of the asset-holding vehicle (an estate or a trust) and the beneficiaries of that vehicle.
In other words, a personal representative could be held legally responsible for the mismanagement of an estate or a failure to provide a beneficiary with their promised assets. Similarly, a trustee is responsible for managing the contents of a trust, keeping it solvent, and paying out distributions to beneficiaries per the instructions they were given.
Any competent person — or a company licensed to operate as a fiduciary — can legally act as a personal representative or trustee. Those serving in these roles are entitled to receive some form of reasonable compensation for their services. They must also be provided with the necessary resources to manage the legal entity (trust/estate) they are in charge of managing.
The same person or company can serve as the personal representative of an estate and a trustee. This arrangement is most common with married couples, where the surviving spouse may be listed as both.
However, in some situations it may be inadvisable for the same person to take on both roles. A surviving loved one may be going through a difficult time while they are expected to bring an estate through probate. They may also lack the expertise to financially manage a trust over a long period. Speak to an Albuquerque testamentary trust will to discuss your options and your unique estate so that you can come to the best decision for who should serve as trustee or personal representative, given your particular situation.
Some of the most common types of testamentary trusts in Albuquerque include the following.
These trusts ensure that a loved one who is dependent on public benefits (e.g., Supplemental Security Income or Medicaid) would not receive an inheritance that would cause them to go over their program’s resource limits.
These are often formed through a contingency clause stating that a testamentary trust should be formed if any beneficiaries are under age 18 (or another designated age) at the time the will enters probate.
These trusts can reduce or defer estate taxes, paying an income stream to a designated party before paying the remainder balance to another type of party. A charitable lead trust pays income to the charity first, with non-charitable beneficiaries receiving the remainder. A charitable remainder trust does the opposite: paying income to non-charitable beneficiaries before donating the remainder balance to charity.
Since testamentary trust assets must first pass through probate, they can be subjected to creditor claims against the decedent’s estate. However, a testator may be concerned about beneficiaries losing their assets after they inherit them because of existing claims against them. If this is the case, the testator can create a testamentary trust and include a spendthrift clause (and/or give the trustee discretionary powers), which can prevent creditors from accessing the beneficiary’s trust interests.
A pet trust creates strong assurances that a beloved animal that outlives the testator can receive adequate care until the end of its life. These trusts set aside money for the animal’s care, designate a trustee, and designate a person to care for the animal. Alternatively, the trustee can be given discretion over who to select as caretaker. The trustee (and sometimes a designated trust protector) is responsible for ensuring that the animal is receiving care, according to the standards and instructions left by the testator/settlor.
These trusts reserve assets for designated beneficiaries (usually the children of a couple) while still paying income to a surviving spouse.
A life insurance policy can list a testamentary trust as a beneficiary. This strategy is often used by families with a high amount of illiquid assets. That way, the estate’s personal representative can use life insurance proceeds to pay off estate debts without having to liquidate a significant portion of the estate itself. The proceeds are also able to grow and generate income, rather than being paid out immediately to beneficiaries.
A testamentary trust will opens up a wide amount of options for your estate, giving you the power to benefit multiple generations, protect assets, reduce taxes, provide care for pets, or succeed in other goals.
Reach out to our Albuquerque testamentary trust will law firm to find out more about how to take maximum advantage of this strategy when estate planning. Call 505-503-1637 or contact us online to schedule a confidential, no-obligation consultation with an experienced attorney near you.
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