New Mexico Family Trust Lawyer

Your family means the world to you. You want to ensure that they are well cared for, even when you may no longer be around to look after them.

A family trust is an excellent estate planning tool that can help you prepare for an uncertain future, knowing that your children and the rest of your descendants will be taken care of for generations to come.

Highly flexible, family trusts can also provide a wide range of benefits and purposes to suit your estate planning goals. Depending on how they are structured, they can help set aside money to care for a loved one with special needs, reduce the estate taxes paid upon your death, or help your family maintain its privacy by avoiding probate.

Turn to New Mexico Financial & Family Law for assistance with understanding all of your available trust options and selecting the estate planning strategy that makes the most sense for your future goals. Reach out to an experienced New Mexico family trust lawyer for a no-obligation case review when you call us today at 505-503-1637 or contact us online.

How Can a New Mexico Family Trust Attorney Help Me?

The most important aspect of estate planning is understanding where you are now and where you want to be.

Getting a will together is a very important first step, but your estate planning preparations may also include the formation of a family trust — especially if you want the confidence that comes with knowing that critical assets are set aside safely for your family’s future use.

When you work with New Mexico Financial & Family Law, we’ll help you feel prepared for whatever may lie ahead after taking the following steps:

1. Financial portfolio review: We begin the process with a partial review of your current financial portfolio, focusing on the parts most relevant to your eventual legacy, such as long-term investments that can be handed down to surviving family members.
2. Discussion of personal goals: Every person has different dreams for the future, especially when it comes to how they want to prepare for any challenges ahead. A family trust attorney in New Mexico will help you put your goals into concrete language and then extrapolate those into guiding criteria for an eventual financial planning strategy.
3. Comprehensive review of family trust formation options: Family trusts can be customized in a broad range of ways. With respect to your portfolio and your goals, we’ll go over some of the most commonly chosen options along with some tailored recommendations, helping you decide on the perfect trust, trust, or set of estate planning options capable of helping you reach your long-term goals.
4. The trust formation document is created: With careful consideration for potential misinterpretations and likely risks, we’ll craft a one-of-a-kind trust document that will set your estate planning instruments into motion. We can also perform a review of your will — or help draft a new one — so that it complements the mechanisms of your specific trust portfolio.
5. The trust is funded: Trusts are officially created when assets are transferred into them. This process can occur at a specific date, or it can happen through language activated by your will at the time of your death (a testamentary trust).
6. Your family benefits from your trust for years — or generations — to come: The beauty of a well-formed trust is that it lasts for many years at a time. Some family trusts (called dynasty trusts) can even last for centuries or in perpetuity. The entire time, your family members obtain support as beneficiaries, positioning them to achieve their own goals while maintaining financial security.

This process ensures that your family trust is capable of helping your loved ones in truly meaningful ways, possibly for multiple generations down the road. By placing your hard-earned assets into a family trust, you’re securing not just your own financial legacy but the ability of your beloved family members to someday create their own.

How Does a Typical Trust Work in New Mexico?

A trust is a legal entity that is allowed to maintain ownership of the assets held within it. This status allows it to survive past the lifetime of the original trust creator while still enforcing rules set in place when the trust was drafted.

All trusts involve three main significant parties:

• Grantor (or Settlor) — The person who creates the trust and funds it with assets held in their name.
• Trustee — A person or institution put in charge of managing the trust, maintaining its value, and ensuring that distributions take place as intended. Note that, for some trusts, the trustee and the grantor can be the same person while the grantor is still living.
• Beneficiaries — The individuals receive distributions from the trust. In a family trust, they are all likely to be personal family members of the grantor.

Deciding on a Trustee

One of the most critical decisions to make when creating a trust is to name a trustee as well as a succession of alternate trustees if the first is unable to serve. A trustee can be anyone, including a family member, but the grantor may wish to name someone who is not themself or a beneficiary if they want to protect the financial security of the trust from creditor claims.

Often, a business professional, like an attorney or financial advisor, is named as the trustee. A business entity can also be named, such as an accounting firm or financial advisory firm.

It is also important to consider that a trustee may not be capable of serving for more than a few years at a time, either because they pass on or lose the energy to be able to continue overseeing the trust. Since this will likely be the case for a family trust intended to last for many years, the grantor should decide on a series of possible trustees.

That way, one can be replaced quickly in the event that another is unwilling or unable to serve. This due diligence is especially important for irrevocable trusts since it may be possible that the trust dissolves if a valid trustee can not be located.

Trustees are governed by their general fiduciary duty, but it can also be helpful to set terms in the trust to guide their oversight and behavior. The trustee can be forced to report to beneficiaries yearly on the contents of and activities within the trust, for example.

They can also be expected to help the trust generate a certain amount of income based on targets or incentives.

Determining a Distribution Schedule for Beneficiaries

Distributions to beneficiaries can happen nearly any way the grantor prefers. Often, distributions will be disbursed on an ongoing basis as an annuity, or they can be transferred in one or a few large lump sum amounts.

The grantor can also set rules for how distributions will be made. A common example is that a beneficiary who was a minor at the time the trust language was drafted must complete school and obtain a degree before they are eligible to receive funds from the trust.

The beneficiary may also be allowed to withdraw funds only for qualified expenses, such as for a home purchase, business start-up, the birth of a child, or another life-changing event.

What Assets Can Be Placed Into a Trust?

Nearly any asset held in the name of the grantor can be placed into a trust, including:

• Cash account balances
• Securities, including stocks, bonds, options, and other investments
• Equity in a closely held company
• Real property
• Art, jewelry, and collectibles
• Vehicles

Note that any asset technically under ownership within the trust is subject to an “access and enjoyment” test for personal use. What that means is that if the asset is regularly accessed and enjoyed by a grantor or a beneficiary, then they have constructive ownership of it, potentially making them the target of asset recovery efforts by creditors while creating other possible complications.

For this reason, it is often best to leave personal assets like primary dwellings and everyday vehicles out of the trust.

Taxation on Income Generated From Trust Assets

The contents of a trust are likely to appreciate or generate income as a result of their continued ownership. Property held in trust can generate rent through tenant payments, for example. Securities held in trust can appreciate in value, creating returns when they are liquidated.

Income earned from trust assets must either be taxed as trust income or personal income in most situations. Since trusts are subject to higher taxation rates at lower brackets compared to personal income, it often makes the most sense to declare these gains as personal income instead.

These gains can be claimed by the grantor during their lifetime in a grantor trust. They can also be claimed as income by the beneficiary at the time the interest is withdrawn as a distribution.

Transfers of the principal value of the trust — AKA the value of cash and assets originally used to fund it — are not taxed since they would have been funded with assets that were already taxed once.

Paying tax on distributions instead of in-trust income also allows the relative amount of trust income to be spread around while deducting from the trust’s income from that year. This approach reduces the overall tax burden of the trust’s income in a way that typically produces overall savings.

Major Options to Consider When Forming a Family Trust in New Mexico

When deciding to form a family trust, you should consider all of the various options available for how the trust is formed, structured, and managed.

Some of the most important options to consider include choosing from the following types of trust structures:

• Living vs. testamentary
• Revocable vs. irrevocable
• Grantor vs. non-grantor
• Spendthrift vs. non-spendthrift

Living vs. Testamentary Trusts

Just as the name implies, a living trust is created while the grantor is still alive. Doing so can allow the grantor to obtain certain benefits, such as drawing an annuity from the trust for the remainder of their life or giving them the ability to change the structure of a revocable trust.

Testamentary trusts are created through language in the last will and testament of the grantor. Because they are funded with assets from the grantor’s estate, the assets must first pass through probate, however, making them subject to possible claims, estate taxation, and public disclosure.

Revocable vs. Irrevocable

A revocable trust can be changed or rescinded by the grantor, often with no permission from other parties. This status means that the grantor legally has some claims to ownership of the assets in the trust, so the assets are likely to be included in their estate, and they can also potentially be accessed through creditor claims against the individual.

Irrevocable trusts cannot be altered or dissolved once they have been created. This status makes them riskier since the grantor only has one chance to get the language of the trust right.

At the same time, irrevocable trusts undeniably remove assets from the ownership and control of the grantor and other parties. This status means the assets are wholly owned by the trust, usually ensuring the trust will bypass probate.

Irrevocable trusts can also prevent certain creditor claims from being levied against the trust’s assets.

Grantor vs. Non-Grantor Trusts

A grantor trust allows the grantor to claim income generated by the trust as personal income. This status reduces the tax burden of the assets, in many cases, because the tax rates are higher for trusts at lower bracket intervals compared to a regular person.

Non-grantor trusts remove the grantor’s interest in the trust, making tax on income the responsibility of either the trust itself or the eventual beneficiaries.

Spendthrift Trust Provisions

A spendthrift trust does not allow a beneficiary to transfer their interest in the trust to another party. This designation can prevent a beneficiary from leveraging future interest in the trust as a bargaining chip to pay off debt or fund risky investments.

It can also further separate ownership of property interests in the trust, reducing the risk that a creditor can go after the contents of the trust to recover a debt owed to them.

Special Types of Family Trusts

The beauty of a family trust is that it can be structured in a wide range of ways for special purposes. Examples of common types of family trusts include:

• Child Care Trust — Sets funds aside for the care of a minor child or an adult-dependent child.
• Special Needs Trust — Sets funds aside so that an adult with disabilities can have medical care and other essentials paid for.
• Bypass Trust — Places the value of a spouse’s assets in trust when they pass on until the other spouse passes, creating potential benefits for estate tax savings and asset protection.
• Dynasty Trust — Creates a trust intended to last for multiple generations, avoiding specific taxes while helping ensure distributions to descendants for decades to come.
• Asset Protection Trust — Removes assets from the ownership of the grantor and/or beneficiaries so that they can be protected from most creditor claims.

Call Our New Mexico Family Trust Law Firm For Guidance

Get started on your journey towards a future that is more financially secure, thanks to our team of experienced New Mexico trust attorneys. Your estate planning efforts can ensure that your assets go towards creating a better lifestyle and brighter future for your family members — including ones you haven’t even met yet, thanks to the long lifespan of many trusts.

Learn more about how to best prepare your family for an uncertain financial future with trust formation and estate planning by scheduling an appointment with a New Mexico family trust lawyer near you. Call 505-503-1637 or contact us online to schedule a no-risk consultation with our experienced attorneys today.