Forming a trust can make asset management more straightforward while helping your household accomplish a wide range of other possible goals. There are many different types of trusts available, each with its own advantages and specialized uses. A Santa Fe trusts lawyer can help you review all of your options to select the ideal arrangements for your specific objectives.
From a simple revocable living trust to a complex generation-skipping trust, New Mexico Financial Law can help you understand the advantages and specific use cases of each choice available. Reach out to our firm to work with a team that wants to listen, understand your needs, and help you come up with a long-term plan to accomplish all of your estate planning goals.
You can schedule a confidential, no-obligation case review with us today when you call our offices at (505) 503-1637 or contact us online.
One of the most advantageous qualities of a trust is its ability to remove property from the grantor’s estate.
Usually, when someone dies, all of their estate property (with a few exceptions) has to go through probate. This property is described in the decedent’s will, which makes it a matter of public record.
The estate’s personal representative must also inventory all property and then use it to pay off any expenses, unpaid debts, and other claims. Estate property can only be transferred to heirs after these matters have been dealt with.
As a result of this process, probate usually introduces several months’ worth of delays before heirs can receive their property. In addition, the value of the property may be significantly diminished by claims before it can be distributed to heirs.
Anyone wishing to mitigate this situation can consider forming a living trust. Once they die, the trust assets can go immediately to beneficiaries.
Or, unlike estate property, the assets can remain in the trust and continue to generate income. Probated estate property, by comparison, must be immediately distributed to heirs at the end of probate.
These advantages are one major reason why trusts are such a popular estate planning tool. However, for a trust to deliver on its expected benefits, it must be well-formed, using precise legal language while accommodating the grantor’s unique situation. A Santa Fe trusts lawyer can help you determine what strategies would be needed to successfully avoid probate and accomplish other goals.
A trust is a legal arrangement that places assets owned by one party (the grantor) into the care of a third party (the trustee) for the sake of another party (the beneficiaries).
When assets are placed into a trust, they technically become owned by the trust and no longer belong to the grantor. The trustee is considered officially responsible for the assets. They have to maintain them and manage the trust competently for the sake of the trust’s beneficiaries.
Trustees have a fiduciary duty to keep up with trust administration tasks, including stewardship over the trust’s asset portfolio. They must also follow all trust rules and ensure that beneficiaries receive assets as instructed.
Those are the basic contours of every trust, but there is a nearly infinite level of customization that can be explored from there. To quickly become familiar with all the primary options, it helps to learn more about the differences between trusts with the following traits:
Each of these categories is described in greater detail below. However, their effect on your specific situation or ability to fit within your overall estate plan can differ from what is covered on this page.
Accordingly, make sure to consult with a trusts attorney in Santa Fe before coming to a final decision. They can review your situation and help you analyze how the different types of trusts could affect your long-term legal and financial plans. They can then recommend a range of options, helping you create a trust that stands the best chance of benefiting your estate while achieving all of your goals.
Revoking a trust terminates its arrangements, often reverting ownership of trust assets back to the grantor.
Only certain types of trusts can be revoked. Usually, these are trusts with simpler arrangements: they own property that is managed by a trustee. In fact, the grantor can be the trustee of a revocable trust in most cases.
More complicated trusts typically must comply with specific laws in order to produce an intended benefit. These are often irrevocable, meaning that they cannot be easily modified or terminated. Putting greater legal distance between the grantor and the trust property can provide benefits, such as asset protection or tax-advantaged distributions. There may be other advantages that make the trade-off of losing unlimited access to assets worth the inconvenience.
Keep in mind that, while both types of trusts require careful planning, an irrevocable trust should be very precisely crafted since it cannot be modified or easily “fixed” in the future.
Also, note that all trusts become irrevocable once their grantor (or all grantors) have died.
A living trust refers to any trust that is created during the grantor’s lifetime. These trusts can be either revocable or irrevocable.
By comparison, testamentary trusts are created after a grantor’s death. They are always irrevocable.
Testamentary trusts are created using estate assets through a provision of the grantor’s will. Toward the end of probate, when the estate’s executor is distributing property to heirs, they will treat the testamentary trust as an heir (sometimes the sole heir). Once assets are placed into the trust and a trustee is named, the trust can begin functioning as normal.
If a grantor has formed a living trust, they also have the option of using a “pour-over will” to transfer their remaining estate assets into the trust. They could also optionally distribute all assets to beneficiaries or decant the trust into one or more new testamentary trusts.
All trust arrangements can become significantly more complicated after the death of the grantor. Getting in touch with an estate planning attorney in Santa Fe can help you understand your options, avoid unnecessary complexity, and build a strategy that offers the highest chances of producing the positive outcomes you seek.
The term “grantor trust” mostly refers to a classification that is used by the IRS to determine who should report trust income.
Any time a grantor has significant power over the contents of a trust, including the ability to revoke it or access its principal assets, then the IRS is likely to classify it as a grantor trust.
Grantor trusts report all income and losses as if they were the grantor’s. The grantor provides documentation of a trust’s activities when they file their yearly household tax statement. The trustee has a shared legal responsibility to ensure that this income is reported and that appropriate taxes are paid on time.
Non-grantor trusts report all profits and losses as their own on a separate trust tax return. They also pay taxes at different rates compared to an individual. This arrangement can mean that a non-grantor trust ends up paying higher taxes compared to an otherwise identical grantor trust.
At the same time, a non-grantor trust may be able to take advantage of other favorable tax arrangements, such as the ability to report more deductions than an individual could.
Understanding the tax implications of a trust likely requires input from both an accountant and an experienced Santa Fe trust lawyer. Refer to both professionals to determine what arrangements could work best. They can then help you uphold your responsibilities for filing and paying taxes on trust income.
There are dozens of popular types of trusts. Each one can be customized to fit your unique goals and situation.
When reviewing your options with an attorney from an experienced trusts law firm in Santa Fe, you can consider — or rule out — some of the most common arrangements described below.
A revocable living trust is a relatively simple type of trust. It can provide benefits for asset management, incapacity planning, and probate avoidance.
The grantor (the person who creates the trust) can name themself, a close family member, or a revered professional adviser as their trustee — which is common in a family trust. The grantor can also modify or revoke the trust at any time.
If the grantor names themself as the trustee, they can also appoint a co-trustee or successor trustee. These secondary trustees can help them manage their trust’s assets at any time they need, including when the grantor has become incapacitated.
The most common goal of creating a living trust is to keep assets out of probate while keeping them accessible during the grantor’s lifetime.
Since irrevocable trusts make it more difficult for the grantor to access their trust assets, they introduce a layer of protection between the grantor and their creditors. Accordingly, creditors may find it more challenging to compel the grantor to force a distribution or otherwise access the contents of their trust to pay off a debt.
Beneficiaries may also be able to benefit from these asset protections, depending on how the trust was structured. A trust’s ability to provide asset protection to beneficiaries can be strengthened if it includes a spendthrift clause and gives the trustee discretion over distributions.
Medicaid and Supplemental Security Income (SSI) require that applicants have very little income and only a small amount of resources before they can qualify.
A Medicaid asset protection trust (MAPT) is an irrevocable trust that removes assets from the grantor’s ownership. This transfer has the effect of reducing their countable resources. It can also keep the state Medicaid office from claiming their assets using estate recovery after they die — but only if the asset transfer occurred before the start of the state program’s “lookback” period. In Santa Fe, this period is five years (60 months). Note that estate recovery only applies to individuals who sign up for Medicaid long-term services and supports (LTSS).
A Miller Trust (also sometimes called a qualified income trust) acts similarly, except it serves to reduce the grantor’s income rather than countable assets. The trust diverts income from the grantor and places it into a separate bank account. The grantor can use this money for non-covered medical costs. They may also be able to withdraw a little bit each month to pay for non-medical living costs or to support a spouse still living at home.
A special needs trust works similarly to both types of trusts described above. They remove assets and income to help someone qualify for Medicaid, SSI, or a waiver program. These trusts can be established by an individual with disabilities (a first-party trust) or someone wishing to provide money to support them (a third-party trust).
All of the trusts described in this section must comply with all applicable state and federal rules to provide the expected benefits. Refer to a Santa Fe trusts lawyer for guidance.
In addition to the trusts described above, you may also want to ask an attorney from an experienced Santa Fe trusts law firm about the following options:
New Mexico Financial Law is available to provide you with guidance, advice, and assistance with creating or maintaining a trust. We can also help you with trust-related litigation.
When you rely upon our services, we’ll ensure that you fully understand all of the opportunities and obligations created by your trust. That includes your trustee’s responsibilities, your legal obligations to your beneficiaries, your tax filing requirements, and the many “dos” and “don’ts” that can come with operating a trust. Find out more — and get started with building your ideal arrangements with the help of our Santa Fe trusts law firm — when you call (505) 503-1637 to schedule a no-obligation case review.
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