One of the many aspects of a professionally created estate plan involves employing strategies to…
Exploring the Best Trust Options for Married Couples
When it comes to estate planning for married couples, one critical decision is whether to establish a joint trust or opt for separate individual trusts. This choice can significantly impact how assets are managed and distributed, making it essential to understand the nuances of each option.
What is a Trust?
A trust is a legal entity where a grantor, the person creating the trust, gives a trustee control over assets in the trust, usually to distribute them when the grantor has died. The person receiving the trust is the beneficiary. They have no control over the assets until they are distributed. In the case of a revocable living trust, the grantor and the trustee are often the same person.
A revocable trust, also known as a revocable living trust, can be changed many times, or even dissolved whenever the grantor wants. However, when the grantor dies or becomes incapacitated, the trust becomes irrevocable, meaning it cannot easily be changed. It also becomes inaccessible to creditors.
How Do Joint Trusts Work?
As its name implies, a joint trust has multiple co-trustees. This is a commonly used trust for spouses, especially when the wish is for the surviving spouse to receive 100% of the couple’s assets when the first spouse dies. The joint trust is revocable while both spouses are living and, depending on the trust terms, may continue to be revocable after the first spouse dies.
After the death of the first spouse, the surviving spouse becomes the sole trustee. On the death of the second spouse, the trust becomes an irrevocable trust. This is when an appointed successor trustee takes control of the trust, including distributing assets to beneficiaries as directed in the trust documents.
Why Would You Use a “Joint” Revocable Trust?
In his video, “Is it Better to Have A Joint Trust or Separate Trusts?” Jacksonville Estate Planning Attorney Bill O’Leary explains the different reasons why a married couple would want to use a joint trust or separate trusts.
Traditionally, many married couples find a joint trust may be a suitable and convenient choice. The primary appeal of a joint trust lies in its simplicity and the continuity it offers in asset management. Couples can maintain joint ownership of their assets, consolidating them into a single “shared box.” Thus, spouses can both transfer assets into the same trust and both own it. This approach often feels more natural and less disruptive, as it doesn’t necessitate a significant change in how assets are held. For couples whose finances are not overly complex, a joint revocable trust may be a great choice.
Why Might Older Couples Have Separate Trusts?
Historically, individual trusts were more prevalent, largely due to the tax laws in place at the time. Older generations, such as parents or grandparents, might have individual trusts as a result of these now-outdated tax regulations. However, with changes in tax laws, the necessity for separate trusts for tax purposes has diminished, making joint trusts a more attractive option for many.
What Advantages Do Joint Trusts Offer?
Assets in the joint trust don’t go through the probate system, which help the assets in an estate be distributed faster and easier after the death of both spouses. The assets in the joint trust and the terms of the trust remain private, since the trust documents don’t become part of the public record. Finally, a joint trust does not need to file a separate tax return, as long as one spouse is still living.
When Does It Make More Sense for Married Couples to Use Separate Trusts?
Despite the general trend towards joint trusts for married Florida couples, there are specific scenarios where separate trusts may be more advantageous.
Unequal Asset Distribution or Creditor Issues
In cases where spouses have significantly unequal assets, separate trusts can offer a better solution. For instance, if one spouse owns a business or has a substantial stake in a partnership, their business interest, being a distinct asset, might be more suitably managed through an individual trust.
Additionally, a joint trust may offer less protection from creditors than separate trusts, if one of the spouses has financial issues. If spouses combine their assets in a joint revocable trust, assets in both trusts would be vulnerable to creditors.
If a spouse expects to receive a sizable inheritance, they might prefer to keep this inheritance separate. In such instances, an individual trust can prevent the commingling of these assets with marital property.
Second Marriages and Blended Families
Particularly in second or subsequent marriages, where both partners may have children from previous relationships, separate trusts can provide tailored solutions. It’s harder to leave any assets in the joint trust to non-spousal beneficiaries, like children from a prior marriage. The surviving spouse retains control over all assets in the trust. If there is no language in the trust concerning children, they will not inherit anything from the trust.
Separate trusts can ensure that the new spouse is cared for while also protecting the inheritance rights of children from previous marriages. They can establish specific provisions to prevent unintentional disinheritance.
Joint Trusts in Second Marriages
Interestingly, in many second marriage scenarios, a joint trust can still be effectively utilized. This approach avoids the need to segregate assets into “yours” and “mine,” maintaining a unified management of the couple’s property. With careful planning, a joint trust can address the needs of both the current spouse and any children from previous marriages.
Working with a Florida Estate Planning to Choose the Right Trust
Deciding between a joint trust or separate trusts depends on various factors, including the nature of the couple’s assets, their family dynamics, and their long-term estate planning goals. While joint trusts offer simplicity and a sense of unity in asset management, separate trusts provide distinct advantages in situations involving unequal assets, anticipated inheritances, or complex family structures. Ultimately, the choice should be made after careful consideration and, ideally, with the guidance of an estate planning professional. Schedule a free discovery call with Team Legacy if you have questions about the use of a joint verses separate trusts and how to make the best choice based on your personal circumstances.