Santa Fe Contingent Trust Lawyer

If you are concerned about how your assets might be given to — or withheld from — your intended heirs, then a contingent trust might be the best strategy to avoid an undesirable situation. These special types of trusts are usually created through a contingent provision in a will. If activated, the testamentary trust can be treated like an heir, receiving assets during probate. A trustee can then manage the trust until it is no longer needed.

Setting up a contingency trust requires careful planning and the use of the correct technical language. Without experienced assistance, the trust may fail to activate as expected. Other negative consequences could also follow. It’s because of these risks that a Santa Fe contingent trust lawyer is often recommended when employing this strategy within your estate plan.

New Mexico Financial & Estate Planning Attorneys can assist you with all stages of the process. From forming a personalized estate plan to drafting a will to ensuring that best practices are followed when writing the contingent trust language, you can benefit from the services and knowledge of our experienced attorney team. Find out how we can help you when you call (505) 503-1637 or contact us online today.

When to Reach out to a Santa Fe Contingent Trust Attorney

Contingent trusts are most often used when someone is worried about the possibility of dying while their children are still minors. These trusts may also be useful for navigating other common situations that could complicate an inheritance, such as:

• The pending sale of a business or real estate property, the proceeds of which are intended to be used to fund inheritances
• The impairment of an heir with a disabling condition, requiring a special needs trust to be formed to avoid disqualifying them for aid programs like Medicaid or Supplemental Security Income (SSI)
• The death of an heir, in which case the testator (i.e., the will’s creator) would rather have their intended inheritance go to a trust
• The birth of grandchildren who were not known of when the will was last updated, in which case the testator would prefer to have funds set aside specifically for them using a contingent trust
• The onset of another situation that would cause the testator to prefer holding some or all of their estate assets in a trust rather than distributing them to heirs at the conclusion of probate

If any of these situations could apply to your family, it’s important to begin planning soon with the help of a Santa Fe contingent trust attorney. Your attorney can advise you, suggesting the best strategies for achieving your goals.

When you meet with an attorney, they will first listen attentively to learn about your family situation, your intended inheritance arrangements, and the concerns you have that would possibly require a contingent trust. In some cases, your attorney may even recommend an alternative to a contingent trust, such as a living trust, depending on the advantages offered.

When you come to New Mexico Financial & Estate Planning Attorneys, we always seek to help you build a customized strategy, one fit perfectly to your unique situation. It’s always critical to examine all of your options before committing to a particular approach. This is especially true for devices like a contingent trust, which require the utmost care and precision when writing their forming language. Otherwise, the trust may not activate or operate as intended.

A Santa Fe estate planning lawyer can also review the other parts of your arrangements to ensure that everything can work together in a coordinated manner. With our thorough approach, deep knowledge, and comprehensive estate planning services, you can know with confidence that you did everything possible to ensure that your goals will be achieved.

How Does a Contingent Trust Work?

Contingent trusts use the same general structure as other trusts, which rely on three main roles to function:

• A grantor (also sometimes called a “settlor” or “trustor”) creates a trust by transferring assets into the ownership of the trust.
• A trustee is responsible for managing the assets and following the other rules set by the grantor, including making the required distributions to beneficiaries.
• Beneficiaries receive transfers from the trust, according to the rules set by the grantor.

Importantly, a contingent trust is almost always a testamentary trust. These types of trusts are formed only after the death of the grantor. Since they are created using a provision of the grantor’s last will and testament, they are referred to as a “testamentary” trust.

Contingent Trusts Rely on Specific Conditions Being Met

Testamentary trusts can be used by anyone who creates a will. By including a clause with the functional legal language, the testator can require their estate’s personal representative (AKA their “executor”) to create the trust during probate. The trust is created when it is funded with estate property.

To ensure that the trust activates as intended, the testator should declare the following, as part of the trust’s formative language:

• What assets should be used to fund the trust
• Who should serve as the trustee (including backup or “successor” trustees is recommended)
• Any guidelines the trustee should follow while managing trust assets
• The identity of the trust’s beneficiaries (can be specific named people, a family role like “my grandchildren,” a company, a charitable organization, etc.)
• When the trustee should pay out a distribution to the beneficiaries (e.g., “every third month,” or “when my immediate descendant turns 21”), along with the assets or cash value that should be distributed
• How long the trust is expected to last (i.e., the trust’s “term”)
• Any other guidance or rules the grantor wants to set (e.g., requiring their heir to finish a bachelor’s degree program before they can receive their distributions)

With a contingent trust, the testator will also describe an activating condition. They should clearly state what this condition is, so that there can be no ambiguity as to whether or not it was satisfied at the time of their death.

If the condition is met, the estate’s personal representative must create the trust as instructed. The trustee will then manage the trust’s assets on behalf of its eventual beneficiaries.

If the condition is not met, the assets intended for the trust will go to another heir. The testator can specify what this might look like. Their arrangements can include:

• Giving all assets designated for the contingent trust to one specific heir
• Distributing the assets intended for the trust across multiple heirs or a class of heirs (e.g., “my children”)
• Including the assets in the estate residuary, which means they will be given to the heir (or heirs) named in the residuary clause

Using a Contingent Trust to Set Aside Assets for a Minor

Contingent trusts are most often used in cases where someone has children under the age of 18.

If all parents were to die, then any gifts left to the children in a will could not be directly inherited, under New Mexico law (NM Stat § 46-7-16). Instead, the assets would have to be given to a person known as the “custodian.” This custodian is then expected to maintain the value of the assets, to the extent possible, while using the funds solely for the benefit of the child.

A custodian can be the same person as a guardian appointed to care for the child. If the parent neglected to nominate a custodian in their will, the estate’s personal representative must choose an appropriate custodian.

Unfortunately, there’s no direct supervision for custodians by default. While an “interested person” — or the child themself, if they are over the age of 14 — can file a complaint regarding the use of the inherited funds, these checks against the custodian’s discretionary power can take time to work their way through the courts. Worse, it may be too late. With the damage done, it can often be difficult to recover these funds, even if the custodian is ordered to pay restitution.

In addition, an interested person (or the minor in question, if they are over the age of 14) can petition the court for an order to force the custodian to discharge money for the child’s benefit. After this order has been issued, there’s no responsible party other than that same court to ensure that the money was spent in the manner that was detailed in the complaint. In other words, a custodian can be forced to release money to the minor without any oversight as to how that money would later be spent.

Between the risks of an unscrupulous or irresponsible custodian and the issues with defining how, when, and why the money should be spent, it’s difficult or impossible to guarantee that a minor is actually able to benefit from — or even receive a substantial material portion of — their inheritance. Fortunately, a contingent trust offers a viable solution in many situations.

Forming a Contingent Trust for Minors Using a Will

As a provision of your will, you can include language similar to the following:

“If I should die before my child, [NAME], has reached the age of 18, I wish that the assets designated to them under my will instead be transferred to a testamentary trust.”

The contingency clause should then describe the arrangements for the trust, including who should be the trustee, how the funds should be distributed and used, and when the child can expect to receive direct distributions from the trust.

A Santa Fe contingent trust lawyer can help you use the most appropriate language to define how the trust should be set up and operated. They can help you coordinate this contingency strategy with the rest of your estate plans, as well. These preparations can ensure that your will remains able to flexibly respond if, say, one child has turned 18 before your death but not the rest of your children.

Using a Contingent Trust for Someone With Special Needs

Another common use of a contingent trust is to create one when an heir is using (or intends to use) needs-based benefits programs for support. Once the special needs trust is created, it can be used for qualifying expenses, according to the rules and limitations of the program used by the heir.

These types of trusts can be more difficult to form, especially as a contingent component of a will, so be sure to consult with a Santa Fe contingent trust lawyer to uncover the best strategy for your situation.

Using a Living Trust as an Alternative to a Contingent Trust

As an alternative to a contingent trust, someone can create a living trust. Often, this will be a revocable living trust, but it can also be irrevocable if their goal is to gain benefits like asset protection or estate tax reductions.

Once the living trust is created, anyone, including a minor, can be listed as a beneficiary. While a minor cannot receive their distributions until they reach at least the age of 18 (or are emancipated), the trust can define how distributions are made. These distributions can be made to a guardian, or they can directly fund defined expenses. For example, the trust can be set up to pay for all costs for schooling. This can include funds for tuition, books, and educational equipment like laptops.

The trust can also explicitly define when the child can receive their distributions directly. This may be after the child turns 18, 21, 23, or any given age. They can receive their total inheritance as a lump sum or in installments.

All of these arrangements can be made with a contingent testamentary trust, of course. But with a living trust, the grantor can ensure that all trust property has been properly titled and that a trustee is in place who can gain experience managing the trust’s assets.

Once the grantor dies, the trust becomes irrevocable — unless a co-grantor, such as a surviving spouse, has been named.

The benefit of using a living trust is the added certainty it offers: there are risks to relying on a will to create a testamentary trust. The only drawback with a living trust is the time and expense of setting one up, especially when there is a chance that the trust was not needed at all.

To decide between a contingent trust vs. a living trust, you can refer to an experienced Santa Fe trusts attorney for guidance.

Provide for All of Your Loved Ones With the Help of a Santa Fe Contingent Trust Lawyer

Contingent trusts are complex, but they do provide added financial security. Not to mention, they also offer enhanced peace of mind for parents, guardians, and others trying to prepare for an uncertain future.

While they can be challenging to set up, relying on an experienced Santa Fe contingent trust law firm can make the process much more straightforward. With their assistance, you can feel more confident knowing that your trust is much more likely to be correctly formed and operated in the manner you intended.

Explore your options for protecting and providing loved ones of all ages when you call (505) 503-1637 or contact us online to schedule a no-obligation consultation with New Mexico Financial & Estate Planning Attorneys today.