Revocable Trusts/Living Trusts
Trusts are an estate planning tool that allow you to avoid probate, minimize estate taxes, secure privacy, and detail your final wishes for the distribution of your property; they are legal mechanisms for the management and distribution of your property, both while you are living and after you die. While trusts offer many benefits to those who establish them, some people are reluctant to transfer ownership of their assets to the trust (see New Mexico Trusts). Revocable trusts provide trustors (person who sets up a trust) with the peace-of-mind that they can modify or terminate their trust at any time.
A revocable trust may be established in writing by any adult over the age of 18 who is of sound mind. These trusts may be a good idea for people who own property in more than one state, would like to avoid guardianship, have concerns about privacy and want to reduce the delays in the distribution of their property upon death. Keep in mind that revocable living trusts do not avoid estate taxes since it is considered part of the trustor’s estate. Living trusts are not the best estate planning tool for everyone; only a qualified New Mexico wills and living trusts attorney can help you determine if a living (revocable) trust is best for you.
Revocable trusts may be set up both as individual living trusts and joint living trusts. Joint living trusts are generally used for married couples; they enable couples to reduce or eliminate the estate taxes up to their full exemption. The federal estate tax exemption changes from year to year and is currently at $3.5 million dollars per person for 2009. By using a joint living trust, parents may be able to pass a total of $7 million dollars on to their kids tax free.
Here’s how a joint living trust works:
When a couple puts their property into a joint trust, ownership rights are split in half—one half going to each spouse. When one spouse dies, their half is then placed into a credit shelter trust (also known as a family trust) equal to the maximum federal estate tax exemption. The rest of the assets, including the surviving spouse’s share, are placed into a survivor’s trust.
The family trust is irrevocable and not included for estate tax purposes at the death of the surviving spouse; the surviving spouse has access to all income and principal of the family trust. The survivor’s trust remains revocable and provides for the well-being of the surviving spouse. Upon the death of the surviving spouse, the trust sets forth the terms of disposing the assets to the trust beneficiaries.
If you would like to learn more about revocable trusts, contact one of our New Mexico wills and living trusts attorneys in Albuquerque, Farmington, Las Cruces, Roswell and Santa Fe today.