Ask the Probate Judge

Ask the Probate Judge—Who Needs a Trust?

By Merri Rudd, appeared April 18, 2002 Albuquerque Journal, Business Outlook
Reprinted with permission

Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.

In New Mexico companies, attorneys, and others give seminars to various audiences about living trusts. Some give balanced presentations about all of your estate planning options, including trusts. Others tell you that a trust is your only option. The less reputable presenters may make misleading or false statements, such as probating an estate will cost 10% of the estate value. How can the average consumer distinguish between credible companies and individuals who sell trusts, and the others?

First, contrary to the sales pitches, not everyone needs a trust. Second, probate in New Mexico can be a simple and inexpensive procedure. For an estate that contains a house worth $100,000 and $200,000 in bank or stock accounts, the fees for an uncontested probate with an attorney's help should range between $500 and $2,000. Amounts vary depending on the hourly rate charged by the attorney, guidance needed by the personal representative, and other factors. The fee should not be anywhere near 10% or $30,000!

Fees are considerably less (perhaps $100-$200) for those who use the do-it-yourself probate forms in the Probate Court. Overall fees can increase if the case becomes contested or more complex.
How do you decide if you need a trust? Factors to consider include:

the value of your assets;
the type of assets you own;
how your assets are titled (are they titled in your sole name or have you used joint tenancy, payable on death (POD) accounts, transfer on death (TOD) accounts, other beneficiary designations, or transfer on death deeds (TODD)?);
whether you are providing for children from another marriage;
whether you are concerned about a spouse remarrying after the first spouse dies and giving assets to the new spouse;
whether you can use a trust to do tax planning;
whether you own real property in several states;
whether you have minor children or specials needs children;
whether you are concerned about future incapacity (a living trust can provide management during your lifetime);
whether you wish to avoid a court probate proceeding;
whether you want to pay for a trust now in order to avoid probate costs later (sometimes the costs of each are comparable; it's just a matter of when you pay).
If several of the above factors apply to you, you might be a good candidate to create a living trust. If many of the factors do not apply, creating a trust may be unnecessary.

Some companies provide inexpensive do-it-yourself trust kits. While individuals are allowed to prepare their own legal documents, I do not recommend that anyone prepare their own living trust. Understanding the concepts of community property, titles to property, tax planning, and other aspects is essential to creating a trust document tailored to your specific needs. Filling out forms may seem easy, but understanding the true effect of the words is not so straightforward.

Not all companies that sell trusts are owned by New Mexico businesses. Our state laws require those who prepare legal documents for others in New Mexico to be licensed to practice law in our state. Despite this requirement, sometimes businesses outside of New Mexico have trust documents prepared in other states by attorneys who are not licensed to practice law in our state. This is illegal.

Before agreeing to buy a trust from a company, consider asking:

Do you have an attorney, licensed in New Mexico, with whom I will be dealing in person (the answer should be 'yes')?
Is the attorney assigned to me knowledgeable about New Mexico trust laws?
Why do I need a trust?
How much of the fee you charge does the attorney receive and how much does your company receive?
Have you had any complaints or lawsuits filed against your company in New Mexico or in other states?
If the company representative is reluctant or unable to answer these questions, consider hiring different professionals to prepare your trust.

Remember that living trusts are not appropriate for everyone. Reputable professionals should outline all of your estate planning options, including trusts, and help you decide what is best for you. When individuals with simple estates have used joint tenancy, POD accounts, TOD accounts, other beneficiary arrangements, and TOD deeds to avoid probate and have signed powers of attorney to provide for management of their affairs, a living trust is often unnecessary.

Make sure you need a trust and are paying a fair price before hiring someone to prepare your trust. Avoid high-pressure sales tactics, such as "you must buy a trust today to get this special rate." Take your time, shop around, compare prices, and do not be reluctant to say 'no' to a salesperson or attorney if you do not want or need a trust.

Contact the Consumer Protection Division of the Attorney General's Office, 1-800-678-1508, to find out whether any complaints or lawsuits have been filed against a particular trust company. The Consumer Protection Division, P.O. Drawer 1508, Santa Fe, New Mexico 87504-1508 also has a brochure called "Living Trust Scams" that you can request.