A New Mexico contingent trust can create a trust when certain conditions are met, typically as a result of provisions written within the trust creator’s last will and testament. A contingent trust is most-often arranged by parents of minor children, setting aside funds until they are old enough to reasonably manage the funds themselves.
Another common contingency trust arrangement is to place assets intended for a beneficiary into trust in the event that they become severely disabled or mentally incapacitated.
You may wish to create a contingent trust if you are concerned about the ability of any of your intended beneficiaries to access or properly use your assets after you have passed on. It is an excellent method for preparing for multiple future possibilities, with the added benefit that it won’t activate unless it has to.
The experienced estate planning attorneys at New Mexico Financial & Family Law can assist you in creating a contingent trust. We always listen closely to the details of your situation, leaving room for questions while providing tailored advice on all of your available options.
When you are ready to discuss your plans for the future, we are ready to listen. Call us at 505-503-1637 or contact us online today to schedule a confidential case review with no obligation.
Trust formation provides an advantageous way to ensure that your assets are protected in this life, and that they are able to go to your intended person (or organization) for your intended purpose even after you die.
A contingent trust can help you prepare for a possible future outcome that may never arrive. Such a trust is often created using language contained in a last will and testament.
That said, it is possible to have a contingent trust activate prior to your passing, such as when you lose medical and mental capacity for over a set number of days.
Creating a trust of any type can provide tangible benefits, especially in connection with a well-rounded estate plan. However, trusts can also be complex to set up.
Given that a contingent trust also will not activate unless the trust creator dies or is incapacitated, it is especially important to ensure that the language and mechanisms providing for the trust are capable of accomplishing your intended goals in a legally compliant way.
New Mexico Financial & Family Law has over 25 years of experience helping locals in Albuquerque and throughout the state plan for the future. You can feel confident knowing that your case has been handled by a team with deep levels of knowledge and experience.
Our sole goal in every case is to help you precisely describe your ideal future state and then maximize the chances that that future state will come to pass. To do so, you will consider all of your available options, along with considerations for potential risks that can affect your intended plans.
You can then prepare for a future that is all-but assured, even if disruptions or unfortunate circumstances threaten to derail your goals.
Come to us if you want a contingent trust arrangement that is capable of fully providing for your loved ones with minimal risks, to both your plans and the assets you want to potentially be placed in trust . While we cannot guarantee a specific outcome will come to pass, we can help you prepare for a wide number of possible futures with the intention of creating robust trust language capable of weathering most risks.
A contingent trust relies on two main parts: the provision that will cause the trust to be created once a certain scenario comes to pass, and the language structuring and funding the trust itself.
In most cases, a contingent trust will be created using provisions from a last will and testament — or, more casually, a “will.” This arrangement all-but ensures that the trust will be created under the specified circumstances, since it is legally required for your estate representative (or a surviving beneficiary, if no representative is designated) to read your will and ensure that it is executed once you have passed on.
Importantly, the language creating a contingent trust will be worded in such a way that the trust will only be created under a specifically described situation. One extremely common situation used to activate a contingent trust would be when a parent dies and their children are still minors.
With this provision, the trust will not be created in the event that the children reach 18 years of age before the passing of the parent. That way, even if the parent fails to update their will to account for the fact that the trust is no longer needed, the phrasing will still help avoid a trust from being created for no valid reason.
A contingent trust can be activated using other legal documents, but the creator of the trust (the “grantor”) must be certain that the document will be read in the event that the described situation occurs. If, for example, there was a document that triggered the creation of a contingent trust in the event that a parent became medically incapacitated, that parent would have to have created an advanced healthcare directive while also instructing an attorney or family member to make sure the document was read once they were incapacitated.
Put another way, if the grantor is not able to ensure that the document creating the trust is enacted, the contingent trust may never be formed. For this reason, it is vital to provide instructions in advance to an attorney or other trusted party to review the legal document in question, if that document is not a will.
Once the situation specified in the will, advanced medical directive, or other document has come to pass, then assets will be used to fund a trust. These assets become the legal property of the trust.
The grantor will, in advance, specify a trustee who will be placed in charge of the management of the trust while overseeing the distribution of assets to named beneficiaries. A beneficiary can be named as the trustee, but only if there are other beneficiaries in addition to them.
However, it is often advisable to appoint another trustee, since the contingent trust is often activated for the purposes of caring for someone who is a minor or who lacks capacity.
Trustees are allowed to make decisions in order to maintain or benefit the trust. They may be permitted to sell certain assets — or all of the assets — if doing so would help provide better for the designated beneficiary (or beneficiaries).
There are a number of laws that protect the assets of trusts from abuse by trustees. All trustees have a fiduciary duty, for one, that requires them to not act in self-interest and to take reasonable efforts to protect the value and viability of the trust.
The trustee must also take all expected and reasonable actions in order to ensure that the trust eventually distributes assets as planned to the beneficiaries.
Under New Mexico law, trustees also have a duty to report regularly to beneficiaries or proactively inform them of any issues with or major changes to the trust (NM Stat § 46A-8-813).
As mentioned above, a common scenario that would activate a contingent trust is when one or both parents of a minor child die. The trust will be created, putting assets that would normally be inherited by the child into the trust until that child reaches a designated age.
Some funds can be designated for specific purposes while the child is still a minor, such as money that can be used to pay for healthcare or education expenses. The remaining assets can be transferred to the child once they reach adult age.
The trust can also be used to fund for the care of a child if the expected guardian is unable or unwilling to do so. If, for example, a child was expected to be under the care of a wealthy uncle but instead ends up being cared for by an unexpected other family member, the trust could ensure that the child’s needs are provided for according to their expected level of comfort.
A contingent trust can also be activated in order to protect property in the event that its owner becomes medically incapacitated. This arrangement could provide the grantor with peace of mind knowing that their assets are safely held in trust and out of the reach of possible bad actors while they are unable to watch over the assets themself.
Technically, a contingent trust can be created for any valid reason, but the most common reasons are to provide for someone who is unable or not yet ready to manage the funds themself.
A contingent trust created during the lifetime of the grantor can be revoked provided that the grantor has the capacity to do so. If the trust was created through their will (called a testamentary trust), then the trust can only be altered if it contains language allowing the beneficiaries to do so.
Because a contingent trust is typically either revocable or testatory, its assets are usually considered to be part of the estate of the grantor should they pass on. This status means that the trust’s contents will pass through probate.
It may also mean that certain claims may be able to access funds or assets in the trust, under certain circumstances.
If someone wishes to create a contingent trust that is not revocable, they must have the assets already placed into an irrevocable trust prior to their death. The irrevocable trust can then create a separate contingent trust, if the grantor wishes for such an arrangement to be made.
A trust is allowed to own any property and assets that can be owned by an individual or another registered legal entity, other than an S corporation. Common assets used to fund a trust include:
The trustee has permission to sell any asset and make other modifications to the contents of the trust, such as purchasing securities using cash funds from the trust. If the grantor wants a specific asset to be preserved, such as a cherished family heirloom or stock for a beloved company, then they can specify any such instructions for the trustee.
The grantor has wide discretion to select the person or organization that will receive distributions from the contingent trust, should it be created. Common examples of beneficiaries include:
Note that you can also name contingent beneficiaries, who will receive the expected distribution if another beneficiary is unable or unwilling to receive it. For example, if a designated charitable organization dissolves before it can receive funds from a contingent trust, the grantor could potentially name an alternate charity for the funds to go to.
A contingent trust is the perfect way to protect the people and things you care about most in the event of the unexpected. While the hope, in most cases, is that the contingent trust will never need to be activated, it is at least there and able to provide support should the worst case scenario come to pass.
If you are interested in possibly laying the grounds for a contingent trust or planning ahead for the future in other ways, reach out to our experienced New Mexico estate planning attorney team. We are ready to discuss your options and help you gain the confidence that comes with planning ahead for nearly anything that could come your way.
Schedule a risk-free, no-obligation consultation with a New Mexico contingent trust lawyer near you when you call 505-503-1637 or contact us online.
just fyi “in trust” is a specific legal phrasing. I changed most instances to “in the trust” to be consistent with earlier edits, but in this case where we’re talking about a hypothetical trust, it makes sense to phrase it as such
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