New Mexico Estate Planning FAQs
Planning your estate is important for ensuring that your property is left to whom you choose. Without planning, certain assets may be subject to your State’s intestacy laws which determine who will get your property in the case where there is no will (this is referred to as dying intestate). Proper planning can allow a person to leave their property to whomever they would like, while minimizing the costs and hassles associated with transferring that same property after death. Having a good estate plan in place will save money in the form of time and legal fees associated with probate and other legal matters, as well as allow for the possibility of tax liability management. Here is a list of common questions we receive when meeting with potential clients looking to plan their estate. If you have any questions feel free to setup an appointment to meet with one of our estate planning attorneys today.
Do I Need a Will?
This is a common question encountered by estate planning attorneys. The answer depends on numerous factors including what you own, if you have children, and how you want your property treated after your passing. You may not have a lot of property to pass, but a will can be a good place to make your wishes known with regard to whom you want to raise and care for your children or manage your affairs and interests.
A Will is generally used to specify who gets your property when you die; but a will only applies to certain types of property (lawyers usually call this property probate assets, or assets subject to probate). As mentioned above, a will is also a good place to indicate wishes with regard to raising children. Generally speaking, a will can transfer many different types of property. The problem with using a will is that it requires the party wishing to transfer the property to go through the probate process. The will has to be admitted to probate to actually transfer the property along with a petition from an interested party (usually the person named in the will as executor or personal representative). Probate is a public process and thus anyone can see who was provided for in the will and what each person received.
A good estate planning attorney will usually include some form of will in any estate plan, but usually the estate planning lawyer does not want the client to have to use the will. Estate lawyers typically want to avoid probate, and its correlated costs, by using probate avoidance methods and estate planning mechanisms. Probate avoidance is attractive because the probate process can take large amounts of time, and/or cost lots of money. If some party contests the validity of a will, then the property that is the subject of that contest could be tied up for years.
Can/Should I Avoid Probate?
Probate avoidance mechanisms pass property by operation of law. Common examples of transfers that happen by operation of law are bank accounts with a pay on death beneficiary, designation of a beneficiary on a life insurance policy, titling land as joint tenants with rights of survivorship, executing and recording transfer on death deed, the use of trusts, and several other options. Avoiding probate completely is a possibility in most instances, an estate planning lawyer can strategize how property is left so that probate can be avoided and estate tax liability minimized (if applicable). As mentioned above, the reasons for avoiding probate are generally to avoid the costs associated with probate, avoid the time and hassle that administrating a probate usually requires, and avoid having the will become public record. The cost of hiring an estate planning attorney is usually far outpaced by the expenses associated with going through the probate process.
What is a Durable Power of Attorney?
A power of attorney is a document where a person (usually referred to as the principal, or grantor) is giving someone else (referred to as the attorney in fact, or agent) the authority to act on his/her behalf. A durable power of attorney is a power of attorney that can be used after the incapacity of the principal. A durable power of attorney can be used for various things, but is often used to transfer property and make financial decisions (a financial power of attorney), or it can be used to allow someone to make medical decisions (a medical power of attorney). These documents can be limited in scope (allow the attorney in fact to do certain or particular things) or can be very broad.
Do I Need a Power of Attorney?
Generally having a power of attorney for both medical and financial reasons is a great idea. I don’t know of any estate planning attorneys that will create a full estate plan and leave out these essential documents. Since the power of attorney can be used during life (capacity) it is a very useful tool. A power of attorney can be used to make medical decisions on behalf of a loved one, or it can be possible to change ownership of property before death. Usually married couples will have reciprocal power of attorney forms which will allow one spouse to act on behalf of the other and vice versa.
What is a Trust?
A trust is basically a contract between the creator of the trust (the Grantor or Settlor) and a person called the Trustee for the benefit of the beneficiaries. The Trustee is responsible for carrying out the terms of the trust agreement (which includes giving distributions to the beneficiaries of the trust). The creator of the trust will place property in the name of the trust, and the trust agreement will govern how that property should be managed by the Trustee. Technically speaking, title of property placed into trust has two parts, a legal part and an equitable part. The Trustee holds legal title, and the beneficiary holds equitable title. This division of property into two parts allows the Trustee to manage the property for the benefit of the beneficiary.
Typical ways that trusts are setup are where the creator of the trust is also the Trustee of the trust while alive (this is known as a self-settled trust). Trust agreements can have provisions that may prevent creditors from getting access to trust property (these types of trust make use of a spendthrift clause); these types of trusts are commonly used for asset protection purposes. Certain types of trusts can be formed in such a manner as to only provide for a beneficiary while still leaving that beneficiary eligible to receive government benefits (this is known as a special needs trust).
Do I need a Trust?
First of all, trusts are a great way to avoid probate. Secondly, trusts can be used for savings on estate taxes by utilizing both spouses’ estate tax exemption (which only applies to large estates). The necessity for a trust really comes down to each individual’s particular situation. Trusts are generally harder to contest than a will, because the level of capacity required to form a trust is less than that of a will. In many cases, a trust is not required to avoid probate completely, but it is certainly one of the best probate avoidance mechanisms. Another added benefit to forming a trust is that the terms of the trust, like who gets what property, can remain private. Finally, the difference in cost between drafting a will as opposed to a trust is negligible considering what could be saved in estate taxes, and the time and expense that could be saved by avoiding probate.