Estate Planning Considerations in New Mexico
Whether you live in New Mexico or are considering a move, there are several different estate planning considerations in the 47th state. While some are not unique to New Mexico, there are a few interesting differences that are worth considering.
Community Property
New Mexico is one of nine community property states. Community property is generally comprised of all property acquired by married persons during their marriage while living in a community property state. Separate property is anything that is owned by one spouse only, it is not considered community property. Separate property includes anything that was acquired by one of the spouses prior to their marriage, as a gift or inheritance, or that the spouses have specifically agreed to designate as separate property (which may be done in a prenuptial or premarital agreement).
The distinction between community property and separate property is very important in planning for your estate and can create conflicts that may require each spouse to have their own advisor/lawyer.
This system can be traced back to New Mexico’s original colonization by the Spaniards. Quick history lesson: community property was derived from the Visigothic Code of Spain which recognized that married couples share the gains and losses accumulated during their married life. The Visigoths were unique in their beliefs compared to other legal systems in early medieval Europe because they recognized that a married woman could have separate property of her own. Many of the Western states adopted and continued this method because it was well suited to the frontier environment and the fact that husbands and wives both worked hard labor to keep their households afloat.
Avoiding Probate
Probate is a legal process for either validating the will or determining that a person died without a proper will (also called “intestate”) and designating someone to administer the estate (also called a “personal representative” or “executor”). Probate is usually necessary only if there are assets to be transferred and the property is not titled appropriately. Many people want to avoid probate for a variety of reasons including the expense involved, potential complexity, and for privacy purposes. A will, trusts, joint tenancies, beneficiary designations, and payable on death designations can help you accomplish your goals regarding how an estate is distributed to help avoid the probate process. New Mexico also allows for real property, such as land, to be transferred on death by deed. This method does not affect the owner’s right to sell, use, or rent the property during their lifetime, and many bank accounts and investment accounts will have a similar transfer on death or payable on death designation.
Taxes
There are a few different kinds of taxes that must be considered when a person passes away, including final income taxes (if there is taxable income), an estate’s income taxes (if there is taxable income), gift tax, and estate tax. Most inheritances are not subject to income tax, and most estates do not face estate tax due to the large exemption equivalent (currently $11,700,000 per person). Community property creates some planning opportunities for an estate because the surviving spouse is generally entitled to a step-up in basis of 100% of the property value upon the death of the first spouse. In New Mexico, joint tenancy property between spouses is presumed to be community property unless established otherwise. New Mexico also does not have an estate tax, a gift tax, or an inheritance tax.
Healthcare Decisions and Planning for Incapacity
Another important aspect of your estate is providing direction about what should happen if you are incapacitated or need advanced medical care. For example, someone may want to instruct others on whether they want extraordinary means to be taken to preserve their life. New Mexico has adopted a healthcare decisions law and mental health decisions law that permit a person to designate a decision maker and provide enforceable decisions about care to be provided or withheld.
Additionally, New Mexico has adopted a law that permits medically assisted suicide under certain conditions. An individual can appoint someone to act and make decisions on their behalf in the event of incapacity regarding their business, property, financial matters, and healthcare. Many married couples assume that their spouse will automatically have the authority to act on their behalf because of the community property law; however, that is not the case with real property. New Mexico requires that both spouses sign documents that affect community real property, or that the signing spouse have a written power of attorney that authorizes the spouse to sign.
There are many factors to consider when estate planning in New Mexico, and goals for distributing the estate of a deceased person can be accomplished in many ways. To help ensure that everything goes according to plan, speak with a qualified professional and learn the unique rules for your specific state.
Ashley R. Gorman
Financial Advisor
CFP®, CPA, MAcc