Is an Estate Plan Necessary? Part 2.

Category: Estate Planning

Previously, in Part 1, I explained how a competent estate plan can be an act of love to those surrounding you by giving them authority to act on your behalf during your lifetime, if necessary, and providing them directions on your exact wishes after your death. While I personally think those are the two most important reasons to have an estate plan, a competent estate plan can do so much more. Depending on your goals, you can utilize deeds, beneficiary designations, or a trust to ensure a smooth transition for ownership of your assets after you pass away.

Avoiding probate

Many people assume that their loved ones will not have to go through probate because they have a will. Unfortunately, having a valid will does not avoid probate. Probate is the name of the court procedure that oversees the distribution of the deceased individual’s assets.  The will simply dictates your wishes, but it frequently requires court oversight to transfer any assets to your loved ones. A will is very important to have in place as discussed in Part 1, but it does not avoid court action. In New Mexico, probate will be required if a person passes away with more than $50,000.00 in assets, less liens, and encumbrances, or if the decedent owned real property solely in their name.

There are three main disadvantages of probate. First, probate can take up time and energy during an emotional and stressful time. Probate takes a minimum of three months but often takes six months or more. Second, probate can be expensive. The New Mexico Courts provide pro se forms for self-represented litigants, but the process is often cumbersome and time consuming.  If your loved ones do not want to do this on their own, they will need to hire an attorney. A probate attorney may require a minimum retainer of $2,000.00. Third, probate procedures are a matter of public record. Anything filed in probate court, such as an inventory of assets or list of heirs, is a matter of public record.

Beneficiary designations, such as a beneficiary designation on a bank account or a transfer on death deed for real property, can be a cost-effective way to avoid probate. Depending on your situation, a better option for avoiding probate could be to create and fund a Revocable Living Trust. This type of trust owns your assets during your lifetime and the trust document outlines what happens to those assets when you pass away. During your lifetime, you have complete control. You get to add or remove items from the trust or change the terms of the trust. Upon your death, your successor trustee must distribute or manage the trust according to the trust document.

Benefits of a Revocable Living Trust

A revocable living trust provides flexibility and allows you to personalize various provisions to address your unique concerns. The revocable living trust can:

Promote family harmony.

By naming a Trustee to make decisions regarding the assets, you can promote family harmony. Working with your attorney, you decide who will make decisions and manage the trust assets after your passing. For example, if a parent wants to leave their house to their three children, there are multiple ways to do so. The parent could leave a house to three children through a transfer on death deed. This would avoid probate. But the transfer on death deed cannot say which child gets to make decisions on the house or what to do with the house. The deed simply passes the house to the three children in equal shares, and if they refuse to work together, they will end up in court fighting over what to do with the property.

Instead, if the parent creates a trust which then owns the house, then the trust document will name a successor trustee who has authority to manage the trust assets for the benefit of each beneficiary.  The parent can decide which child, trusted family member or friend, or corporate trustee will serve as successor trustee. There would be no fighting between the children on what to do with the house because the successor trustee makes that decision. The trust would avoid probate and promote family harmony by settling who makes the decisions about the assets of the trust prior to the parent’s passing.

Provide limited asset protection.

A trust can provide asset protection for the beneficiaries. If assets are left to children through a will, the moment it is distributed to them it becomes available to creditors or a bankruptcy court.  If the trust controls the assets, though, those funds can be protected. Additionally, if you have a loved one who is receiving needs-based government assistance, a direct inheritance will likely disqualify them from that assistance program. However, if the beneficiary receives the inheritance through a supplement needs trust provision within the revocable living trust, the asset is not counted as the beneficiary’s asset. The trust owns the asset and the successor trustee is directed to provide for your loved one without disqualifying them from the needs-based government programs.

Arrange for specific family structure concerns.

For a single parent with minor children, a trust can protect funds by ensuring that the child’s surviving parent does not control the trust funds. A trust cannot prevent the child’s surviving parent from becoming the child’s guardian, but the trust will name a successor trustee to control the assets for the benefit of your minor child. This structure prevents the child’s surviving parent from obtaining direct access to the trust funds and appoints a successor trustee to provide for the child’s needs.

For a blended family, a trust can protect the inheritance for children of a prior relationship. If spouses have children from previous relationships, they may desire to reserve a portion of their assets for their children while still providing for their surviving spouse. A trust can limit what a surviving spouse can do regarding the deceased spouse’s assets and protect the inheritance for the benefit of deceased spouse’s children.

Your family is unique. Your assets and concerns are unique. A consultation with an estate planning attorney can assist you in forming an estate plan that is tailored specifically for your family and assets.

If you have any questions about estate planning please contact me, Stephanie Woods, a Partner with Davis Miles McGuire Gardner, PLLC at 505-948-5050 or via email found at