If you are currently engaged with estate planning or have considered creating a trust in addition to a will, “now” is always a better time to come to a decision compared to “later.” Trusts take a lot of time and effort to set up, but the rewards can be well worth it.
Working with a New Mexico trust planning lawyer can help you fully understand your options and choose the optimal combination of trusts or other estate planning tools in light of your goals.
Unlike a will, many types of trusts can benefit you and your loved ones during your lifetime. Depending on the type of trust you create, your trust can help you prepare for emergency scenarios, save money on taxes, shield assets from claims, provide for loved ones with special needs, or ensure that your legacy is able to have a positive impact.
Reach out to New Mexico Financial & Family Law to discuss your options with a New Mexico trust planning lawyer. We can review your current portfolio and estate plans and make recommendations tailored to your unique goals.
Call 505-503-1637 or contact us online to schedule a no-obligation case review with a New Mexico trust planning attorney today.
Creating a trust is a serious commitment. It requires some initial startup expenses and the transfer of some of your most precious assets. In the case of some irrevocable trusts, you may never be able to recover your assets again once they have been transferred.
At the same time, trust planning should be exciting. You are creating a way to provide for your family while achieving other important financial goals.
In the case of tax-advantaged trusts, you could be saving a significant amount of money, too. Some trusts can even build a foundation for multi-generational wealth, giving your family the support and firm financial footing it needs to flourish for the next century — or longer.
A New Mexico trust planning attorney can help you feel well-prepared for whatever may lie ahead. We want to inspire confidence, knowing that the trust you create will achieve everything you hoped they could.
When you engage with New Mexico Financial & Family Law, we always begin the trust planning process with a thorough review of your current asset portfolio and any investments you have tapped to possibly fund your trust. We’ll discuss your goals for the future, including the remainder of your life and what you intend to happen afterward in terms of leaving behind a legacy.
With your unique goals and portfolio in mind, we will recommend a trust or range of trusts to maximize your chances of producing the best possible outcome.
Our clients appreciate our honesty, insight, and personalized approach to every trust planning engagement. You can rest assured that you will be listened to and well cared for, with seasoned professional guidance along every step of the way.
With our help, you can set up the optimal trust arrangements to suit your family’s unique needs while leaving behind a legacy you can be proud of.
A trust is a legal entity, with similar powers of ownership to a person or a registered corporation.
To create a trust, a grantor (or, in some cases, multiple grantors) transfers ownership of assets to the trust. They will assign a trustee to oversee the management of the trust and name beneficiaries who may receive distributions from the trust at a designated time.
The trust is not active until it has been funded, so it is possible to delay the creation of a trust until a chosen event has transpired. For example, testamentary trusts are created from the estate of the grantor as soon as they have passed on.
Other trusts may be created at the time an asset is sold, like after the sale of a company or a piece of real estate.
Once the trust is active, the trustee will manage its contents. Usually, the trustee has a goal to grow the value of the trust’s assets. Any gains in value are considered “trust income.”
Beneficiaries will receive distributions from the trust. These distributions can consist purely of the trust’s income, or they can come from a portion of the assets held in the trust.
Note that all trusts must have a beneficiary who eventually receives the remaining contents of the trust once its term has expired.
In the case of dynasty trusts, the term can last for a century or more, depending on the state where it was formed. However, the eventual expectation is that most trusts must eventually dissolve, paying a beneficiary for everything that remains.
When planning for the creation of a trust, the most important factor to consider is what you want the trust to accomplish. Just like there are different types of vehicles to get you where you want to go, each type of trust has its own strengths and situations where it makes the most sense to use them.
Some of the most important decisions to consider include whether you want your trust to be:
As its name implies, a revocable trust can be revoked or changed by the grantor at nearly any time. In addition, the grantor has the power to access the contents of the trust or manage them as they see fit.
In many cases, the grantor will name themself as trustee of a revocable trust, giving them sole power over its management. They can also name a co-trustee.
Having a co-trustee is particularly helpful in the event that the grantor unexpectedly becomes incapacitated or dies since it allows for uninterrupted management of the trust.
Another advantage of a revocable trust — one that their irrevocable counterparts can also share — is that any property placed into the trust during the grantor’s lifetime is considered separate from the grantor’s estate. This quality allows the property to bypass probate, potentially saving the grantor’s estate representative time and administrative fees.
Property can also be distributed from the trust immediately upon the death of the grantor, as opposed to waiting for the probate process to end.
An irrevocable trust, on the other hand, cannot be changed or dissolved by the grantor after it has been created. Instead, all of the beneficiaries of the trust have to agree to any proposed changes, which have to be approved and administered by the trustee.
Because the property in an irrevocable trust is undeniably separated from the grantor’s control, it can be protected against creditor claims or lawsuits in many instances.
In addition, some types of irrevocable trusts use the property’s separate status to accomplish special goals, such as:
A living trust is created during the lifetime of the grantor, whereas a testamentary trust is created at the time of their death.
With a living trust, the trust is funded and becomes operable at a time of the grantor’s choosing. The trust can immediately begin earning income and paying distributions to its beneficiaries if the grantor so chooses.
Creation of the trust can also be delayed until certain conditions are met.
A testamentary trust, by comparison, activates as part of the grantor’s will. The trust can retain estate property for a time and allow it to appreciate, waiting for the right moment to distribute to beneficiaries.
This differs from a will, where all property is transferred to beneficiaries as soon as probate ends.
Only a living trust can bypass probate. Property in a testamentary trust has to be processed through probate, allowing the possibility of creditor claims or disputes before it is distributed.
Note, too, that a revocable living trust will convert to an irrevocable trust at the time of the grantor’s death unless a co-grantor remains alive to remain in control of it.
A grantor trust is one where the grantor is named as a beneficiary. This quality can allow all trust income to be designated as personal income for tax calculation purposes.
A grantor trust may also allow the grantor to retain some measure of control over the management of the trust and its contents, even if the trust is irrevocable.
Most revocable trusts will be grantor trusts unless the grantor wishes to designate 100% of the trust’s proceeds to other beneficiaries.
A non-grantor trust will either need to pay income taxes on its proceeds at the trust tax rate (which is higher than the rate for individuals) or pass along income to beneficiaries. These beneficiaries must claim the income on their individual tax return.
Non-grantor trusts are preferable for individuals who want to shield assets from creditor claims.
One of the main advantages of a trust is that it can provide a unique set of rules for its management and distribution.
For example, a trustee can be instructed to simply retain all property in the trust in its current state, earning a steady income stream if the assets appreciate. Alternatively, the trustee can be instructed to manage the portfolio aggressively, selling off any weak assets in favor of those that can appreciate more quickly.
It is up to the trustee to interpret the language of the trust’s guiding document (called a trust instrument) and follow it using their best judgment.
The trustee is also instructed to pay out distributions to beneficiaries at the appropriate time. Instructions for distributions could require that the trustee provides a beneficiary with a steady payment, called an annuity. The annuity can be a flat amount, or it could be a percentage of the total income earned by the trust.
The trustee may also be instructed to either keep the principal assets of the trust (those deposited first to fund it) or distribute them to beneficiaries.
The instructions governing distributions can even be extremely specific. A well-known example is a trust that only pays a beneficiary when they graduate college, motivating them to get a degree before they earn their extra financial support.
Trusts can also be arranged to only pay out for specific needs, like home purchases, births, college tuition, or medical emergencies.
Below, we have listed a few types of trusts that can provide measurable benefits to individuals and families during their estate planning process:
New Mexico Financial & Family Law wants to help you and your entire family benefit from trust planning. There are many advantageous trust structures available, each with its own benefits to offer for your financial future.
Solidify your legacy, and approach your estate plans with more tools at your disposal for building and retaining wealth than you ever thought possible. Our New Mexico trust law firm can make it all happen.
Get started by scheduling a confidential, no-obligation appointment and estate plan review with a New Mexico trust planning attorney today when you call us at 505-503-1637 or contact us online.
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