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Court of Wills, Estates & Probate

The following articles were written by former Probate Judge Merri Rudd.

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Testamentary Trusts

1:11 PM
Merri Rudd

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 trusts.

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 handicap.
  • 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

  • Appeared March 24, 2005, Albuquerque Journal, Business Outlook 
    Reprinted with permission

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