Most people are familiar with the term “living trust,” but the fact that many have heard this term does not necessarily mean that people are clear on the nature and precise benefits that can be derived from this type of estate planning tool. The first point to keep in mind is that the term itself is an over-simplification because there are many different forms that such a trust can take depending on one’s priorities and goals. While a discussion of the multitude of types of living trust arrangements is beyond the scope of this blog post, we have provided a basic overview of what anyone engaged in estate planning decisions should know about this effective estate planning device.
A trust basically is a defined legal relationship between three parties – the trustor (also called the settlor), the trustee and the beneficiaries. The trustor is the party that establishes the trust by transferring assets into the trust to be managed by the trustee for the benefit of the trust beneficiaries. The beneficiaries are those that will receive the assets when they are ultimately distributed by the trustee. Until this distribution occurs, the trustee has a fiduciary duty to manage and invest the assets in the trust for the benefit of the trust beneficiaries and in accordance with the instructions given by the trustor in the trust agreement.
A trust can be an effective estate planning tool that can accomplish a variety of goals that include:
• Protecting the privacy of the family and trustor regarding the nature of the estate
• Avoiding the cost, public exposure, inconvenience, and delay of probate in passing assets to
the beneficiaries
• Reducing capital gains taxes on appreciated assets and minimizing estate taxes
• Providing a means to protect beneficiaries with incompetence, incapacity, or spendthrift issues
• Making assets or income available to loved ones while retaining the right to manage the assets
• Allowing creation of a device that provides flexibility to modify or terminate the terms
• Avoiding legal and practical complications when transferring property to a minor
Because there are so many competing objectives that parties must consider when creating a trust, there is a lot more involved than simply drafting a trust agreement. Even the most fundamental decision about how to structure a trust –“revocable” or “irrevocable” – will have a drastic impact on the way the trust functions and the benefits it provides to the beneficiaries and trustor. This range of choices and options explains why using pre-printed forms or computer programs to produce a living trust agreement can be a treacherous decision.
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The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.
If you have questions or concerns about living trusts or other estate planning issues, our New Mexico Estate Planning Law Firm may be able to help. The New Mexico Estate Planning Attorneys at Jay Goodman & Associates, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 989-8117 to learn about your rights and options.
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