New Mexico Testamentary Trust Lawyer

A testamentary trust is a type of trust created in a person’s last will and testament, controlling how the deceased’s assets are distributed to the named beneficiaries. The trust will have lasting implications for the future of your assets and beneficiaries, with the potential to provide benefits for decades to come.

The team at New Mexico Financial & Family Law has many years of experience in the field of estate planning and trust formation. We have worked with countless individuals throughout New Mexico to help them realize their wishes for the future of their assets and the people they care about most.

Creating a testamentary trust can be an ideal plan for families with significant investments or where the potential for conflicting claims of an estate can be high. There are also other possibilities for the trust, such as creating a trust that gifts some money to charity and the rest to beneficiaries.

Reach out to an experienced New Mexico testamentary trust lawyer when you call us at 505-503-1637 or contact us online.

What Role Does a New Mexico Testamentary Trust Attorney Play in the Estate Planning Process?

Contrary to the popular stigma, testamentary trusts are not just for the ultra-wealthy. Many people don’t believe they even need a final will and testament, but think about it: are you truly comfortable with the state deciding how your assets are distributed?

An experienced attorney acts as a vital resource when planning for the future of your estate. They can provide guidance and in-depth knowledge to secure the right protections for your assets, ensuring that your estate plan accurately reflects your wishes.

The main responsibilities of a New Mexico testamentary trust attorney include:

Evaluating Assets to Include in the Testamentary Trust

Every financial situation looks different. That being said, there are a variety of options that an individual can choose from when securing assets for future generations.

Your attorney can provide critical support at this initial stage, helping you shape the structure of your testamentary trust by deciding on the right assets to include.

Drafting the Legal Documentation

Once you and your attorney decide that a testamentary trust is right for your wishes, your attorney will begin drafting the official documents. A testamentary trust will include a schedule of the assets included, a list of the trustee appointed to manage it, the name of beneficiaries, and the provision of stipulations for distributions, among other important details.

Ensuring Compliance With State and Federal Laws

Testamentary attorneys in New Mexico are well-versed in the state laws that define a valid and enforceable trust. Working with a lawyer to draft your testamentary trust will ensure that all state, federal, and taxation laws are complied with.

This due diligence will protect your beneficiaries and trustee from challenges that could emerge later.

Amending and Updating the Trust

After significant life events like a marriage or the birth of a child, it is advised to review your testamentary trust and talk with your attorney about any changes you consider. When the documents of your trust need to be amended, your attorney can draft up the changes and ensure that they are legally recognized in your current estate plan.

Navigating Probate

An attorney can help the estate representative throughout the probate process, advocating for the assets within the testamentary trust to be distributed as the testator intended. Probate can be complex, but your attorney can accurately interpret your outlined wishes, ensure compliance with state probate laws, and even help settle disputes between heirs.

Provide Ongoing Support

An attorney can offer ongoing support for the trustee to oversee the administration of the distributable assets. This substantial responsibility can come with questions and concerns, so it may bring peace of mind to know that your loved ones have professional guidance through a difficult time.

What Is a Testamentary Trust?

A testamentary trust is a type of estate plan that is established while an individual (the testator) is still alive. The details for forming the trust are included as part of the individual’s last will and testament.

These trusts can only be executed once the creator (called a grantor) has passed away and their assets undergo probate. When an individual creates a testamentary trust, they will name a trustee to accept responsibility for the distribution of assets, include beneficiaries for a specific inheritance, and set any expectations, time frames, or limitations on asset distribution.

You can set rules for inheritance distributions on how and when a beneficiary will receive their share. For example, you can define a certain age or life milestone, like getting married, to trigger a distribution to a beneficiary.

A testamentary trust may be especially beneficial if you have dependents in your care, such as children, disabled loved ones, or family pets. Your last will and testament can outline your wishes for their guardianship to give you peace of mind about their future, while the trust can include funds for their enduring support.

Requirements for a Valid New Mexico Testamentary Trust

Drafting a New Mexico testamentary trust can be more complex than simply outlining your wishes on paper. For starters, a testamentary trust is only valid if the individual’s last will and testament is also enforceable.

It should be crafted concisely with clear interpretation. Otherwise, it may be subject to disputes or a formal will contest.

A testamentary trust is completely customizable, albeit with a few exceptions. An individual’s final wishes may not be honored if they violate public policy by promoting illegal activity or inhibiting a beneficiary’s legal autonomy.

For example, one may not prohibit a beneficiary from getting married or interfere with the court’s previously determined ruling over a dependent’s care. A testamentary trust must also comply with the New Mexico Uniform Trust Code and any other local legislation regarding estates and asset distribution.

A universal step for finalizing a testamentary trust is the probate process. These proceedings will validate the assets laid out in an individual’s will, handle any administrative expenses, field possible creditor claims, and resolve any disputes to the will that may emerge.

The probate process is meant to ensure that the deceased’s wishes are recognized without violating any public governance or the legal rights of any other individuals.

The Probate Process

The probate process is a lengthy legal proceeding.

There are many steps in finalizing an estate, and the executor is responsible for going through each one. A testamentary trust attorney can help throughout the process, but the executor of the testator’s estate will be responsible for:

• Initiation of probate: Once the testator has passed on, the individual who was named executor of the state can file the will with the county probate’s office (it must be filed in the county where the testator resided) to begin the process of probating the will. Simply put, this is when the court begins to get involved by verifying the legality and enforceability of the will’s language and its intended distribution of assets.
• Letters testamentary or letters of administration: The court must approve a will and grant the executor the authority to manage the estate. They will issue a “letters testimony” to the named executor in the will to jumpstart their responsibilities during probate. If no will was ever created, an appointed administrator will receive “letters of administration” from the court, and they’ll be tasked with overseeing the distribution of assets.
• Inventory of assets: After the probate process has been opened, the executor can begin taking inventory of the assets. This duty includes identifying, collecting, and appraising all items in the estate. The contents of the estate will include all real property, accounts, investments, and personal possessions. The inventory must be documented with the court to create a record of future distributions.
• Notifying creditors and beneficiaries: All listed beneficiaries must be notified of the ongoing probate proceedings. You can send an email, a formal letter, or even a text, but this notice should be in writing. The executor must make a productive effort to reach out to unknown beneficiaries, too. The court will recognize actions like putting an ad in the local paper or publishing a notice in an online legal notice board.
• Distribution of assets: Before any assets can be transferred out of the testator’s estate, the executor must ensure that all debts and taxes are paid off. Then, they can distribute the remaining assets to beneficiaries according to the instructions stated in the will. If no will exists, New Mexico state intestacy laws will determine how assets are divided.
• Final account and closure of estate: As the probate process comes to an end, the will’s executor will provide the court with a final account of all transactions made during probate to compare with the original accounting of assets and debts. With the court’s approval, the estate will be formally closed, and the executor will be relinquished of further responsibility.

Important Benefits of a Testamentary Trust

A testamentary trust is one of the most common types of estate plans. They offer various protections and advantages that a will alone could not achieve.

Some of these advantages include:

1. The future of the grantor’s assets is in their control: A testamentary trust allows a grantor to define how, when, and to whom their assets will be divided, with more customizability compared to a will alone. For example, while assets in a will must be distributed immediately after probate, assets in a testamentary trust can remain in the trust for a period of time, earning interest and other income.
2. Flexibility: A testator has the ability to update a testamentary trust during their lifetime, accounting for changes made by life’s circumstances. Even if you have drafted multiple versions of a testamentary trust, the most updated one will typically stand.
3. Protection for minors and special needs dependents: Children and dependents may not need access to their entire inheritance all at once. You may wish to set provisions and appoint a trustee to manage their funds responsibly until they are at a more appropriate age or life milestone.
4. Protection from creditors: Testamentary trusts can offer some protection from creditors by preventing any claims to assets that are held in the trust as long as they stay in the trust’s control.
5. Tax efficiency: Filing a testamentary trust can offer certain tax advantages for beneficiaries later. If distributions are handled strategically, an executor may be able to lighten the tax burden revolving around gift or income taxes.
6. Avoid probate for successive generations: The probate process will only happen once. So, once assets have been transferred out of the testator’s estate, they can be distributed, according to the rules set forth in the trust, to beneficiaries without going through probate again. This arrangement can simplify the inheritance process for large families or those with generational interests.

Tax Implications On Testamentary Trusts in New Mexico

A testamentary trust is its own entity, meaning it is subject to its own taxes. Tax considerations will differ depending on factors, such as the types of assets in the trust and the nature of how distributions are given to beneficiaries.

Below is a general overview of the potential tax implications at the state and federal level:

• Estate tax: While New Mexico does not impose a statewide estate tax, federal estate tax may apply if the estate is worth over the federal exemption limit. As of 2024, the magic number is $13.61 million for individuals.
• Income tax on trust and beneficiary income: Testamentary trusts are subject to federal income tax generated from investments, dividends, or other sources if the income is designated to remain in the trust, as opposed to automatically transferred to the beneficiary at a designated time. Once these assets are moved to the beneficiary’s control, they are generally taxed at the beneficiary’s current tax rate rather than being considered as trust income.
• Capital gains tax: Realized gains within a testamentary trust are subject to capital gains tax. The state of New Mexico does not impose a secondary capital gains tax, so only federal rates apply. However, capital gains taxes do not apply when assets are transferred intact to beneficiaries. Instead, they will trigger when the asset is sold.
• Generation-skipping transfer (GST) tax: This tax was created to prevent wealthy individuals from using a loophole in the system to avoid paying estate taxes. However, every person has a lifetime GST exemption. As of 2024, this is $13.61 million per individual. That means if the total inheritance left to the younger generation stays under this threshold, your estate won’t owe any GST tax.

Talk to a New Mexico Testamentary Trust Law Firm About Estate Planning

If you are ready to develop a comprehensive and detailed plan for your future legacy, our New Mexico trust lawyers are ready to help.

The trusted team at New Mexico Financial & Family Law has been in the field for over 25 years, providing personalized guidance through the complexities of estate planning and trust formation. A testamentary trust is just one of your potential options.

To learn more about how a testamentary trust can protect your assets and benefit the people you care about most, call us at 505-503-1637 or contact us online to schedule a no-obligation case review.