A living trust provides a great option for families looking to simplify estate management while avoiding probate. Because the creator of the trust can appoint a successor trustee or co-trustee, a living trust also offers benefits for incapacity planning and continuous asset portfolio management. A Santa Fe living trust lawyer can assist you through every step of this process.
The only major drawbacks to a living trust are its cost and complexity. They typically make the most sense for families who have substantial or complicated financial holdings. However, a living trust can potentially benefit your family at any income level if your goals include probate avoidance and the continued support of a loved one with special needs after your death.
Starting a living trust is usually more straightforward than other types of trusts, but there are still possible complicating factors. Anyone considering one must first carefully review their asset portfolio and examine their long-term financial goals. They should also be extremely careful about the structure of their trust and the wording of the document used to form it (known as the “trust instrument”).
When you come to New Mexico Financial Law for assistance with starting a living trust, you can benefit from our deep experience and robust knowledge. Call us today at (505) 503-1637 or contact us online to schedule a no-obligation consultation and get started on your journey to secure your family’s financial future.
A “trust” is a type of legal entity that can own property. The trust is officially formed when its creator — who is known as the “grantor, settlor, or trustor” — transfers property into the trust’s name.
Trust funding can happen immediately once the trust’s guiding document (called a “trust instrument”) is completed. The grantor can also optionally delay its funding until a later date.
All trusts are managed by a trustee. Trusts also have beneficiaries, who receive distributions of assets or cash from the trust.
The trustee is responsible for:
A “living” trust refers to a trust created during the grantor’s lifetime. The alternative is a testamentary trust, which is formed after the grantor’s death using assets from their estate.
Living trusts typically have the following characteristics:
These qualities do not apply to every living trust, however. There may be specific reasons you would want to use an alternative arrangement. For example, you may wish to make an irrevocable living trust rather than a revocable living trust, for various reasons (some of which are explained below). Refer to an attorney from a Santa Fe living trust law firm to discuss your options and choose the right strategy for your goals.
A living trust can hold nearly any type of property, including:
However, the following assets cannot be placed in a living trust:
Some irrevocable living trusts cannot contain S-corporation shares. Refer to a Santa Fe living trust lawyer for more details and what you cannot — or should not — include in your trust, given your estate plan strategy.
Another major benefit of living trusts is that your trustee can still manage assets after the grantor has become incapacitated. Their incapacity can stem from a single accident, or it can be related to a mentally deteriorating condition, like Alzheimer’s disease.
Once the grantor is incapacitated, they can have a successor trustee or co-trustee step in to manage the trust, which can serve as a vital resource to family members. Without a successor trustee or a document like a financial power of attorney, family members may be unable to access funds to pay for their loved one’s care. They may also be unable to cover bills and other recurring costs. If the incapacitated person had a business, some business functions could be nearly impossible to maintain.
Having a successor trustee eliminates many of these problems. This strategy can provide the grantor and their loved ones with mental and financial security, just in case the worst happens.
Financial and medical power of attorney may still be beneficial in these situations, however. The ability to access a trust only eliminates some of the concerns of incapacitation. The grantor is likely to still have other accounts and property held in their name, rather than by the trust. Refer to an estate planning and trust attorney in Santa Fe for guidance on how to prepare for a broad range of situations, including incapacity and unexpected death.
A successor trustee must uphold all of the duties listed in the “What Arrangements Can I Make With My Living Trust Attorney?” section above. In addition, the successor trustee’s responsibilities include:
Once the grantor dies, the successor trustee must be prepared to:
One of the most popular trust benefits is its ability to remove property from your probated estate.
Normally, when you die, your assets must be inventoried and processed through probate. As part of this process, creditors can file claims against your estate to recover money for your unpaid debts. The possibility of creditor claims introduces risk, threatening to reduce the value of assets before they can go to your heirs. Worse, asset distribution can’t occur until probate has concluded, often delaying transfers for months at a time.
Transfers of property from a living trust, by comparison, are dictated by the grantor’s rules. Often, the grantor instructs the trustee to distribute trust assets soon after their death. In these cases, beneficiaries can receive their inheritance almost immediately.
Alternatively, the grantor can instruct the trustee to retain trust assets after their death. This strategy allows them to grow, which can fund regular income distributions to beneficiaries.
Some living trusts retain their property after the grantor’s death for as long as possible, only making distributions for qualified expenses like a beneficiary’s education costs. Others may only pay a distribution under certain circumstances, such as when a beneficiary turns 18, graduates from college, gets married, or joins the family business.
Trusts are much more flexible than wills for many different reasons.
A will only activates after its creator has died. It instructs the estate’s executor to distribute assets to specific heirs. This property cannot remain in the estate, as it must be distributed in full before the conclusion of probate.
Wills are also matters of public record. This status means that all estate assets and inheritance arrangements become public knowledge.
A trust, unlike a will, can own property. As mentioned before, if it receives this property before the grantor dies, the property does not go through probate. Non-probated assets are not subject to public disclosures, making the privacy of a living trust another popular advantage.
If the grantor wants any assets left in the estate to be transferred to their living trust, they can include a “pour-over” provision in their will. This provision instructs their executor to treat the living trust as the primary heir of their estate.
Wills are still highly recommended for all estate plans, even those that incorporate a living trust. A will is necessary for nominating your preference of executor, and it can also designate your preference of a replacement guardian for your dependents.
You can enlist the help of an estate planning lawyer in Santa Fe for more information on what to include in your will and how to incorporate a living trust within your strategies.
Unless there is an obvious conflict of interest or other grounds for objection, an executor can be the same person who takes over a trust after the grantor dies. However, taking on both jobs is a huge responsibility. Each involves its own set of rules and requires different procedures.
In any case, the executor must be careful not to break the law when also carrying out their duties as a trustee. For example, they are not allowed to use cash left in the estate as if it were owned by the trust during probate. Instead, the cash can only be transferred to the trust through a provision in the grantor’s will at the conclusion of probate, just as if the trust were a human heir.
If you are planning on naming one person to serve as both your executor and successor trustee, a Santa Fe living trust lawyer can offer you advice. They can provide you with guidelines for the person in the dual role, along with strategies to simplify the management of both the estate and the trust at the same time.
If your living trust is revocable (as many are), then it can be modified or revoked at any time. However, you should take care to avoid adding or removing language in such a way that it harms the trust’s ability to provide the desired functions.
A grantor should file a form to implement trust amendments so that the changes are documented. They should also notify their trustee and beneficiaries immediately of the changes.
It is recommended to avoid making modifications to a trust on your own. Accordingly, make sure to seek the help of a living trust attorney in Santa Fe beforehand. They can ensure that you use clear, precise, and legally enforceable language. They can also verify what obligations you may have to your beneficiaries and how the changes could affect your trustee’s responsibilities.
Revocable living trusts offer convenience in case changes are necessary, but an irrevocable living trust can provide its own advantages in certain situations. Making your living trust irrevocable can offer benefits for estate tax planning, asset protection, and meeting needs-based criteria for a program like Medicaid.
Some commonly used types of irrevocable living trusts include:
The ideal trust for your situation depends on your finances, your goals, and the overall structure of your estate plan. Connect with a Santa Fe living trust lawyer to review your options and decide on the right set of plans for your unique needs.
New Mexico Financial Law can provide you with an attorney who is deeply knowledgeable in matters involving trusts, estate planning, probate, asset protection, and more. They’ll listen closely to you as you describe your situation, along with the goals you hope to achieve, before offering tailored recommendations and advice.
A Santa Fe living trust lawyer can draft the trust instrument, and they can also provide you with guidance on how to operate the trust to reap as many benefits as possible. We are ready to assist you with all living trust matters, including the selection of an appropriate trustee or successor trustees. Find out how you can make the fullest use of a living trust in your estate plans when you call our law firm at (505) 503-1637 or contact us online to schedule a no-obligation case review.
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