Many people can benefit from a trust, regardless of the amount of assets they have. A trust can save your loved ones from the probate process, which can be lengthy, costly and burdensome, and allow you to distribute your assets exactly as you see fit. Additionally, having this document in place can also ensure that your assets are managed and used for your benefit if you become disabled without requiring a court proceeding to get a conservator appointed.
How Does a Trust work?
A living trust, also sometimes referred to as a “revocable trust”, can be used to help disburse assets and help your loved ones avoid going through probate. When this is set up, you place the assets of your choice into the trust which then belong to the trustee. Think of a trust as a paper version of the people who make it – the person entering into the trust is typically both the “trustee” and the “grantor”. However, unlike a human being, the trust does not die because it lacks a physical body. Trusts are set up with successor trustees that can step in and administer the trust’s assets after the original trustee(s) pass away, or even when the original trustee is incapacitated. Additionally, another advantage a trust provides is that you can typically make changes to your trust agreement up until your death, depending on the type of trust you set up, so that it does not need to be set in stone when you make it. The next crucial phase is sometimes referred to as “funding” the trust – this involves retitling assets to be owned by the trust or updating beneficiary designations so that assets go to the trust after the grantor’s death. When you have a trust set up and funded correctly, there will be no need for your loved ones to go through probate. An experienced estate planning attorney can help you ensure your trust is properly set up, allowing the assets outlined to pass seamlessly to the named beneficiaries after you die.
Choose Which Type of Trust Works For You
People can have trusts set up for a variety of reasons and there are different options available to meet your needs. Think about what assets you want to distribute and how you want to distribute them. Here are some of the different options available to you:
- Trust Under Will: If you have beneficiaries that are minors, a contingent trust under your will can allow assets to be held for the beneficiary until they are older and more capable of benefiting from your generosity. Trusts created under a Will are sometimes referred to as “Testamentary Trusts.” The assets of these types of trusts will need to go through a probate, so they will still involve the time and costs associated with probate, but still accomplish the goal of protecting and restricting assets for beneficiaries.
- Revocable Trust: This is an extremely effective planning tool that allows you to designate beneficiaries, avoid probate, and keep your matters private. You are able to decide how you want your assets to be managed during your lifetime and after your death. This can be revised at any time during your lifetime as long as you are able to do so. This day and age, revocable trusts are gaining increasing popularity as many individuals wish to streamline the process after their death as much as possible for their loved ones.
- Irrevocable Trust: Unlike a revocable living trust, this cannot be changed once they have been established. You are still able to select your beneficiary/beneficiaries and determine when and how your assets are distributed, but this cannot be changed once it’s been set. There are many types of irrevocable trusts, most of which are set up in connection with special needs planning, tax or Medicaid planning.
Quick Tip: Have You Thought About a Pour-Over Will?
Do I Still Need a Will?
Even when you have a trust in place, it’s essential to understand that a will serves a complementary role in your estate plan. While a trust efficiently manages many aspects of your assets and their distribution, there are specific situations where a will becomes crucial. Firstly, a will acts as a ‘catch-all’ for any assets you may have owned individually at the time of your passing. These wills are referred to as “pour-over wills” because they catch any assets not put into the trust and pour them into the trust via a probate. These assets, sometimes overlooked during the trust funding process, can be directed into your trust through your will, ensuring they are included in your overall estate plan. Additionally, a will is the primary document where you can name a guardian for your minor children in the unfortunate event of your passing. This critical provision ensures your children’s well-being and upbringing align with your wishes. Lastly, a will has a section where sentimental tangible personal property gifts can be made, such as leaving a wedding ring to your favorite niece. By having both a trust and will setup, you create a comprehensive and harmonious estate plan that covers all potential scenarios, guaranteeing your assets are distributed according to your desires and that your loved ones are provided for as you intended.
Is a Trust Better Than a Will?
Both instruments serve distinct purposes and which option is best for you is ultimately determined based on your personal estate planning goals. A will is a straightforward legal document that outlines how your assets should be distributed after your passing. It is typically less expensive to create and is suitable for simpler estates. In contrast, a trust offers more flexibility and privacy, allowing for the management of assets during your lifetime and after your death, often bypassing the probate process. Trusts can be advantageous for those with complex financial situations, specific wishes such as asset protection, or the need to provide for beneficiaries with special needs. Many people opt for a combination of both to create a comprehensive estate plan – gone are the days where only the extremely wealthy opted to set up a trust and will. The decision ultimately depends on your unique circumstances, and consulting with an experienced estate planning attorney can help you determine the most suitable approach to protect your assets and provide for your loved ones effectively.
If you aren’t sure whether or not you need a trust agreement in New Mexico, we can help. Contact us today for a consultation to discuss your situation. Our experienced Albuquerque estate planning attorneys will let you know which option would be most beneficial for you and which agreement would be ideal for your situation.
