the Probate Judge—Testamentary Trusts
Rudd, appeared March 24, 2005, 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.
Q: My late husband's will contains a trust for our sons, appointing me as
the trustee. There was no separate trust document besides the will. I am working
with several banks who have been satisfied with copying the will. But recently
an Albuquerque bank persisted that there must be a separate trust document
aside from the will. Is there a new law about this, and what can be done about
it? I.W., Red River
I am surprised that the Albuquerque bank does not understand the difference
between a testamentary trust and a revocable living trust. I have written
at length about revocable living trusts, so today I will discuss testamentary
A testamentary trust can be included as part of your will and takes effect
only upon your death. The will contains the trust provisions as part of the
will, so the will also serves as the trust document.
New Mexico law allows you to make a devise or bequest in your will to a trustee
of a trust (this means the trust becomes a beneficiary of your will when you
die). The trust must be identified in your will and must exist as a written
document. Upon your death, the will distributes your assets, or some part
of your assets, into the trust to be held, managed, and distributed by the
appointed trustee according to your instructions.
A court probate proceeding must be started to fund a testamentary trust. Once
a personal representative is appointed in a probate case, that person has
the power and duty to follow the terms of the testamentary trust and transfer
the designated assets into the trust.
Beware: if people have designated payable on death, transfer on death,
or other beneficiaries on all of their assets, there will not be any property
to fund a testamentary trust!
Testamentary trusts are used to:
· Manage and distribute property to children, grandchildren or others
who are under a certain age. In this instance the trustee would manage the
child's property until the child reached a certain age. Some people select
age eighteen (the age of majority in New Mexico), others select age twenty-one
or twenty-five, yet others give a portion of the assets to the child at two
or three different ages.
· Manage and distribute property to someone who has a physical or mental
· Manage and distribute property for a certain purpose, such as to
pay for the education of a child, grandchild or other individual.
· Provide income and, under certain circumstances, principal, for a
surviving spouse with the remainder going to children from another marriage.
· Reduce estate taxes on a surviving spouse's estate.
· Provide financial management and income to a beneficiary who is incapable
of handling financial matters.
Revocable living trusts can also accomplish the above goals.
I hope your bank's legal counsel trains bank employees about testamentary
trusts. In the alternative, perhaps you can move the assets to another bank
that is more familiar with testamentary trusts.
2005, Merri Rudd & Albuquerque Journal, All Rights Reserved