A testamentary trust can be an excellent strategy for maintaining generational wealth, supporting a charitable cause, or accomplishing other goals after your death. These trusts are formed using a provision of your will, treating the trust like another heir (or, sometimes, the sole heir) to your estate.
After being formed, the testamentary trust lasts for your intended period, which can be 90 or more years in Santa Fe — and even longer if it is created outside the state. There are many ways to customize your strategy so it fits within your larger estate plan, so be sure to refer to a Santa Fe testamentary trust lawyer for personalized guidance.
New Mexico Financial Law can assist you with forming a testamentary trust in Santa Fe and incorporating it within a comprehensive estate plan. Find out more about your options and the opportunities you have available when you schedule a no-obligation case review by calling our firm at (505) 503-1637.
The biggest advantage of a testamentary trust is that it pools assets and retains them after your death. If the person who died (called the decedent, testator, or grantor, depending on the context) wants their assets to be used for a specific purpose, a testamentary trust is the most reliable way to do that.
By comparison, a typical estate must be distributed in its entirety to heirs at the end of probate. The property is supposed to go to its recipient with minimal strings attached. If the testator tries to use their will to apply restrictions to how a piece of property is used — such as by saying that a family home must be maintained and not sold or transferred — then this restriction may be struck down as a form of excessive “dead hand control.”
Trust rules, however, can apply to how assets are managed, retained, or distributed as long as the trust remains active. The trustee is responsible for following these rules. It’s the trust, not the trustee, that actually owns this property, after all. Eventually, though, the property gets distributed to the trust’s beneficiaries, according to the grantor’s rules.
This legal arrangement can serve a wide range of possible estate-planning goals, including:
A single testamentary trust can provide multiple benefits — but it wouldn’t be able to accomplish all of the above scenarios at once (unless sub-trusts are used). Accordingly, you should think about the scenarios you want to plan for and the advantages you want to pursue before committing to a particular estate plan.
A Santa Fe testamentary trust lawyer can help you go over your options. They can then recommend choices that have the highest chance of accomplishing your specific goals before helping you draft the final testamentary trust arrangements as part of your will.
MetLife provides the following testamentary trust definition: “A testamentary trust is a specific type of trust that’s created as part of a last will and testament.”
A testamentary trust operates like any other trust, meaning it is a legal relationship between three main parties:
The main differentiator for how a testamentary trust works is that it is created after the grantor’s death. This quality separates it from a living trust, which is created during the grantor’s lifetime.
Both living and testamentary trusts have their respective advantages and drawbacks. You can refer to a Santa Fe testamentary trust lawyer for guidance on creating your own arrangements, including which structure makes the most sense for your unique portfolio and goals.
While a testamentary trust can follow nearly any type of trust structure, they are most commonly used in the following scenarios:
Minors cannot legally take full possession and use of property until they turn 18 (unless they are emancipated). If a minor did receive property through a will, a court would intervene and appoint a custodian to hold onto the money for them until they turned 18 years old. The custodian has discretion to use the funds to provide for the minor, and they might make choices contrary to what the decedent would have wanted.
To ensure that money intended for a minor heir is used in the intended way, a parent or other party can instead include a contingency clause in their will. This clause would state something similar to the following: “If one of my beneficiaries is not old enough to inherit assets directly, I wish for my personal representative to establish a testamentary trust, allowing the property to remain in control of the trust until the minor turns 18.”
Speak to a Santa Fe testamentary trust lawyer if you intend to use a trust to divert funds that could otherwise go to a custodian. They can help you optimize your will and include appropriate language to ensure that your goals are carried out.
Programs like Supplemental Security Income (SSI) and Medicaid have strict income and asset limits. If someone with a disability were to receive an inheritance, it could cause them to be ineligible for benefits.
To avoid this situation, a testator can include a provision for the property to go to a trust rather than the individual with disabilities. The trust can then pay for non-covered living expenses, such as clothing, travel, and education.
Special needs trusts need to follow specific rules to be compliant with the applicable programs. Refer to a Santa Fe testamentary trust attorney for assistance. They can ensure that your trust includes the recommended language and provisions, maximizing the chances that it performs as expected.
A trust created to support a charity can also have the ability to support non-charitable beneficiaries. This arrangement is referred to as a “split interest” vehicle by the IRS.
Depending on how they are set up, charitable trusts can delay, reduce, or in some cases entirely avoid taxes on their income or asset transfers.
A charity can also serve as a contingent beneficiary if an inheritance or trust beneficiary arrangement does not work out as planned. Speak to an attorney from a Santa Fe trust law firm for more guidance on using your estate for charitable giving.
These testamentary trusts are created specifically for the sake of younger relatives (or people the testator thinks of as family).
If the grantor allocates some of their lifetime generation-skipping exemption amount to fund the trust, they can reduce or completely eliminate the impact of generation-skipping transfer taxes.
A grantor can also create a trust with the intention that it lasts for decades or multiple generations. These “dynasty” trusts can pay out regular distributions, or they can make a distribution only under special conditions. An education trust, for example, can support young family members’ tuition costs. Or, the trust could automatically pay out when a family member gets married, has a child, buys their first home, or achieves another milestone.
Trusts formed in Santa Fe must follow the state rule against perpetuities (NM Stat § 45-2-901). This rule limits the trust’s duration to 90 years after its creation or 21 years after the death of a person who was alive at the time the trust was formed.
Dynasty trusts can last longer, however, if they are formed in certain other states. Consult with a Santa Fe testamentary trust attorney if your goal is to support family members for multiple generations to come.
To create a testamentary trust, a testator must include precise instructions for their personal representative in their will.
Because the grantor passes before these instructions are followed, they should carefully craft their arrangements with the help of a Santa Fe estate planning attorney. Otherwise, any issues could lead to a defective trust or even the need for court intervention to sort out a complicated situation.
With an attorney’s help, you can consider key aspects of how the trust should operate, including:
Once you have considered your preferences in response to considerations like these, you can draw up the terms of your trust within your will with the help of an attorney. This document must then be properly executed, according to the rules for creating a valid will in New Mexico (per NM Stat § 45-2-502).
A testamentary trust is created at the conclusion of the probate court process. A trust cannot be formed until assets are placed within it.
In addition, an estate’s personal representative cannot legally transfer assets until they have resolved the preceding steps of probate. These steps are as follows:
Once these steps are complete, the personal representative follows the will’s instructions for creating a trust. They notify the trustee and beneficiaries and legally transfer assets into the trust’s name. The trust can then begin operating as normal.
You can consult with a Santa Fe testamentary trust lawyer to ensure that your personal representative is prepared for these duties. With your attorney’s help, you can anticipate all of the requirements for managing your estate during probate. You can also provide all of the information your representative needs to faithfully carry out your plans.
A testamentary trust can be a great option for fulfilling your estate planning objectives, especially if you want to be formed only under certain scenarios.
However, you may want to consider other options first. That way, you can ensure that you have weighed all of the pros and cons of each strategy before deciding on the one you want to use.
Some popular alternatives to creating a will-based trust include:
Whether you decide to create a trust now, to create one after your death, or to avoid creating one altogether depends on many factors. These factors should include the amount you are willing to spend, whether you want to start a trust immediately, or if you want or need a trustee to accomplish your goals.
Get in touch with a lawyer from our Santa Fe testamentary trust law firm to receive more guidance and understand the best choices for you — and for the future you want to create.
Testamentary trusts involve carefully laid plans, as well as a desire to achieve a specific vision of the future. They can be more complicated to arrange compared to other options, but they have the potential to accomplish complex and long-term goals. They can also provide lasting protection for assets, saving your heirs from possible creditor claims.
Schedule a confidential, no-obligation consultation with an experienced Santa Fe testamentary trust lawyer to learn more about your options. Call New Mexico Financial Law today at (505) 503-1637 to schedule your case review.
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