New Mexico Charitable Remainder Trust Lawyer

As a charitable giving vehicle, a charitable remainder trust offers many tempting benefits. It is especially useful for those engaging in New Mexico estate planning who wish to leave some of their money to charity but who are also looking for a way to create a steady income stream to live off of — or to provide for another beloved beneficiary — for an extended period of time.

Setting up a charitable remainder trust in New Mexico can be complicated, however. It’s critical to review your options and determine a legal strategy for forming a charitable remainder trust with the help of an experienced New Mexico estate planning law firm.

It is especially important to do so if you intend to reap specific forms of tax savings and other benefits from the trust, with minimal risks to the long-term value of your assets.

New Mexico Financial & Family Law can be there for you and your family as you decide on the best method for transferring some of your hard-earned legacy to a charitable cause while creating a predictable income stream for yourself or your other beneficiaries. Reach out to us any time at 505-503-1637, or contact us online, to schedule a confidential case review with no obligation.

Options When Working With a New Mexico Charitable Remainder Trust Attorney

One highly appealing quality of charitable remainder trusts is their flexibility. The trust creator (or “grantor”) can customize all of the following, according to their preferences and goals for the future:

• What non-charitable beneficiaries to designate (potentially including themself)
• What assets to include in the trust
• How to calculate the initial partial income deduction, and how much to claim
• Who to select as the managing trustee
• What charity (or charities) to designate for the donation of the final remainder value
• Whether to select an annuity or unitrust payment schedule
• Whether a strategy will be chosen for selling assets, according to specific schedules or price trigger points
• How much to ultimately pay out from the trust, to both charitable and non-charitable recipients
• Whether a different charitable giving vehicle, like a charitable lead trust, could provide better advantages for your specific situations

When you work with New Mexico Financial & Law, we will review your current situation and intended future goals in detail.

We always make sure to give you the time to thoroughly review all of your considerations, while asking any needed questions. Then, we can recommend a tailored trust formation plan that’s capable of helping you fulfill all of your most important goals.

Our thorough approach ensures that you leave no stone unturned when deciding on the best arrangements for your charitable trust. You will be able to consider all of your options and prepare for different possible outcomes, including ones that account for the many different ways your assets held in the trust might change in value.

Ultimately, our goal is to give you confidence that your intended outcomes for the future can come into fruition — in this life, and in the next.

How Does a Charitable Remainder Trust Work?

A charitable remainder trust is a type of “split-interest” vehicle that allows you to set aside funds for a charitable cause, while also arranging a dependable income stream for you or your loved ones.

The basic structure of a charitable remainder trust is as follows:

• The creator of the trust, known as the grantor, places assets and/or cash funds into an irrevocable trust, which is then managed by an outside trustee
• Income generated from the trust can be used to make regular installment payments to one or more chosen non-charitable beneficiaries. These payments can be a set dollar amount each time (annuity) or based on the current value of the assets in the trust (unitrust)
• The payments are made for a set term, which can be either up to 20 years or the remaining life of one or more of the non-charitable beneficiaries
• After the term of the trust has expired, the remaining assets are donated to one or more charitable institution beneficiaries, who can then liquidate the assets or use them in their operations, as they see fit

What Does an “Irrevocable” Trust Mean?

There are two main types of trusts: revocable, and irrevocable.

A revocable trust, in many ways, remains in control of the initial grantor. The grantor always has the right to revoke the trust, meaning that they can take back the assets remaining within it, long after they have been transferred.

An irrevocable trust, on the other hand, cannot be changed or altered once it has been formed. The trustee has sole discretion over the management of the assets held within the trust, subject to possible oversight from one or more supervisory bodies.

Critically, the grantor has no control over the assets held in an irrevocable trust, nor can they reverse the placement of any assets used to fund the trust.

While an irrevocable trust creates clear risks to the grantor, they also provide multiple advantages since the assets used to fund it are, technically, no longer the property of the grantor. Because of this arrangement, assets placed in the trust can avoid probate of the grantor’s estate once they pass on.

The grantor may also be able to obtain significant tax advantages, in the case of charitable split-interest trusts because they have effectively donated assets away and into the control of the trust.

Charitable Remainder Annuity Trust vs Charitable Remainder Unitrust

One of the primary benefits of a charitable remainder annuity trust is that they provide a reliable income stream to the chosen non-charitable beneficiaries. No matter how the trust is structured, the distributions must meet the following criteria:

• They must equal no less than 5% of the current value of the trust, and be no more than 50%
• They must be made according to a preordained schedule, which can be annually, quarterly, or biannually
• The chosen beneficiaries cannot be changed once the trust is formed, because the trust is irrevocable
• The grantor can designate themself as a beneficiary
• The term of the distributions cannot be more than 20 years, unless the term is set to one or more non-charitable beneficiaries’ lifetimes
• The final value of the remainder to be donated to a charitable institution must equal at least 10% of the initial value of the assets used to fund the trust

The amount of income distributed to non-charitable beneficiaries can be decided in one of two main ways.

A charitable remainder annuity trust makes the exact same payment amount with every distribution. This arrangement makes it easy to predict the ongoing total value of all the assets held in the trust, as well as the amount that will be ultimately donated — affecting what can be deducted from the grantor’s income.

A charitable remainder unitrust adjusts the value of the distributions according to the current total value of the assets in the trust. This arrangement allows you to adjust for unexpected gains or losses in value for these assets.

For example, if a publicly security transferred into the trust performs exceptionally well, the distributions can account for this windfall. Similarly, if the value of an asset unexpectedly plummets, a relative value distribution can prevent the trust from distributing out too much, which could potentially make the trust insolvent.

Another benefit to a charitable remainder unitrust is that, depending on how the trust is structured, the grantor may be able to transfer additional contributions into the trust after it has been started.

Both types of distributions offer their own advantages, but it should be noted that an annuity trust arrangement is much easier to account for, including when predicting the final amount of the remainder that will be ultimately donated.

Refer to an attorney and your financial planner to determine the optimal trust formation and giving strategy that is capable of meeting your goals.

Assets That Can Be Used to Fund a Charitable Remainder Trust

There are multiple types of assets that can be deposited into a charitable remainder trust in New Mexico, including:

• Cash
• Real estate
• Publicly traded stock and other securities
• Equity or stock in other closely held business operations (other than S-corporations)
• Distributions from an IRA account naming the trust as a beneficiary
• Other assets, including vehicles, intellectual property, and more

How Are Assets Managed Once They Are Placed Into a Trust?

When forming a trust, the grantor designates a trustee who can oversee the management of assets, while ensuring that the language of the trust is enforced as written.

Because a charitable remainder trust must be irrevocable, the grantor can encounter complications if they designate themself as the trustee. Instead, it is usually recommended for an experienced trustee company or individual to manage the trust.

The trustee can even be connected to the charitable institution that ultimately receives the funds, such as Harvard Law.

The trustee has wide discretion to manage the funds and other assets contained within the trust. They may elect to sell certain assets, for example, or tap stock options for actual stock trades.

During their time managing the trust, the trustee’s goal is to ensure enough funds remain for both the regular ongoing distributions as well as for the final donation of at least 10% of the remainder to the chosen charitable institution.

Trustees are not permitted, however, to sell an asset for the sole benefit of the grantor. While the grantor can be named as a beneficiary for payment distributions, the trustee has an obligation to avoid “self-dealing” with the grantor beyond making these regular payments.

Possible Tax Benefits of Creating a Charitable Remainder Trust

The biggest tax advantage for a charitable remainder trust is that the grantor is able to make a partial income deduction based on the final projected donation that will be made once the term of the annuity (or unitrust) payments has expired. This deduction amount is often between 30% – 40% of the value of the donation, but it may vary, depending on the circumstances.

In addition, because of the charitable intention of the trust, sales on appreciated assets may not trigger capital gains taxes. Distributions made through the trust may also reduce the burden of gift taxes or estate taxes, compared to a typical after-death inheritance distribution.

One major caveat is that any money received from the trust by the non-charitable beneficiaries must be reported and taxed as income on their annual filings.

Differences Between a Charitable Remainder Trust and a Charitable Lead Trust

When considering your options for a charitable trust, the other major option aside from a charitable remainder trust is a charitable lead trust.

A charitable lead trust follows an opposite pattern to the remainder trust: the grantor funds the trust, which makes regular payments (annuity or unitrust) to the designated charitable institution. Once the term for the payments expires, the remainder of the trust goes to a chosen non-charitable beneficiary.

Choosing to form a charitable lead trust forgoes regular income distributions in favor of a single lump-sum transfer at the end of the trust’s term. The tradeoff is that:

1. The donation made to the chosen charitable institution can be more easily predicted
2. The donor can elect to deduct the donated amount from multiple years’ worth of income by delaying how it is calculated

Generally speaking, charitable lead trusts can be more favorable for reducing taxable income, especially after a windfall year. Charitable remainder trusts, on the other hand, are able to provide steady and predictable income to non-charitable beneficiaries while often reducing the burdens of capital gains and other taxes.

Reach out to a Trusted New Mexico Charitable Remainder Trust Law Firm

The attorney team at New Mexico Financial & Family Law is excited to assist you on your journey towards creating an enduring financial legacy, one benefitting both your loved ones and your favorite charitable causes.

We are eager to help you review your options and get answers to all of your questions about charitable remainder trusts and other options for giving. When you are ready to discuss your estate plans and charitable giving ideas, reach out to our offices at any time.

You can call us at 505-503-1637 or contact us online to schedule your confidential case review with no obligation today.