Why Have a Joint Revocable Trust?
If you’re married, you are eligible to use a joint trust instead of having individual trusts. This recent article, “Joint Revocable Trust: Estate Planning” from aol.com, looks at the pros and cons to see if it makes sense for your estate plan.
A trust is a legal entity where a settlor (called a “grantor” in many other states), the person creating the trust, gives a trustee control over assets in the trust, usually to distribute them when the settlor 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 settlor, the trustee and the beneficiary are all 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 settlor dies or becomes incapacitated, the trust becomes irrevocable, meaning it cannot easily be changed. It also becomes inaccessible to creditors of the remainder beneficiary, but only if the trust is drafted properly.
Why would you need a “joint” revocable trust? 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. Alternatively, it can become irrevocable on the death of the first spouse to die. In this way, a joint revocable trust can, in effect, operate like a “joint will”. Joint wills are not allowed by law, but you can do with a joint revocable trust what you could do with a “joint will.”
Why would a couple need a “joint will”? In this case, a joint revocable trust? Often my clients want to make sure that at least part of their assets are there for their children. This is most often the case with blended families. If there is a blended family, and if the first spouse to die gives everything to the surviving spouse in a last will and testament, the surviving spouse can give everything to his or her children when the surviving spouse dies. This could disinherit the children of the first spouse to die.
This unfortunate situation can be avoided with a joint revocable trust.
When one spouse dies, the surviving spouse becomes the sole trustee. On the death of the second spouse, the trust becomes an irrevocable trust (if it did not become an irrevocable trust on the death of the first spouse to die). This is when an appointed successor trustee takes control of the trust, including distributing assets to beneficiaries as directed in the trust documents.
To decide whether you and your spouse need a joint revocable trust, you’ll want to discuss the pros and cons with an estate planning attorney.
The joint trust is practical and easy to fund and maintain. You and your spouse can both transfer assets into the same trust and you both own it. Assets in the joint trust don’t go through probate, which can get assets distributed faster and easier. 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. Your will would go through probate. Finally, a joint trust does not need to file a separate tax return, as long as one spouse is still living.
In a small number of states, there are state estate taxes with thresholds far lower than the current federal estate tax exemption of $12.06 million per individual. Your estate planning attorney will know what taxes will be due in your state of residence.
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.
Your estate planning attorney will be able to look at your entire estate and see what tools will serve you best.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “Why Have a Joint Revocable Trust?” read also these additional articles: Does ‘Gray Divorce’ Fit into Estate Planning? and What Do I Need to Do Right after Spouse Dies? and Can a Family Limited Liability Company Reduce Estate Taxes? and Should I have a Pour-Over Will?
Reference: aol.com (May 2, 2022) “Joint Revocable Trust: Estate Planning”
