New Trend of Joint Living Trusts in Estate Planning
Updated: Jan 10
Over the last couple of years in our practice, we have encountered many situations where Joint Living Trusts were the best fit for a family's estate plan. In many ways this vehicle creates simplicity and convenience for the family and ease in transitions later in life when financial decisions can become more difficult.
So what is a Joint Living Trust and how is it different from the typical Revocable Living Trust? A Revocable Living Trust is a Will substitute which contains instructions for the trustee for what do do with the trust assets during life and upon death. To create a Revocable Living Trust, a person typically transfers the person's assets to himself or herself as trustee. The trust document also identifies who should take over as successor trustee when the person is no longer able to serve due to death or incapacity.
At death, the successor trustee pays any valid debts and distributes the remaining assets to the beneficiaries designated in the trust document. Administration of the trust does not require court supervision, nor does it require the filing of the trust document in the public record.
So What is A Joint Trust?
Typically, when a married couple utilizes a Revocable Living Trust in their estate plan, each spouse creates and funds his or her own separate Revocable Living Trust, thus creating two trusts. However, under the right set of circumstances, a married couple may be better served by creating a single Joint Trust.
A Joint Trust works best when a couple has the following characteristics (listed from JDSupra.com):
The couple has a long, stable relationship;
Divorce is not a concern for either spouse;
The couple is willing to identify all assets as being owned one-half by each of them;
No creditors' claims exist, whether current or contingent, for which the creditor could seek to collect from only one spouse and not the other;
Neither spouse has children from a prior relationship;
Each spouse is comfortable with the surviving spouse having full control over all of the assets after the death of one of the spouses; and,
The value of the couple's assets is less than the federal estate tax exemption amount. For deaths occurring in 2017, this amount is $5.49 million (or $10.98 million per couple) reduced by any taxable gifts made during life.
In this situation, a Joint Trust could be established transferring their assets to themselves as co-trustees and signing a trust document to provide instructions as to what the co-trustees are to do with the assets. While both spouses are alive and competent, they retain full control over the assets and can amend the trust document at any time. If one of the spouses becomes incapacitated, the other spouse continues to control the trust and can use the trust assets for the needs of the incapacitated spouse and their own needs as well without any interruption or need for any further documents.
Upon the death of one spouse, the Joint Trust continues with the surviving spouse serving as trustee with full control over the trust assets. No transfer of assets is required because all assets are already in the Joint Trust. Upon the death of the surviving spouse, the successor trustee pays any valid liabilities out of the trust assets and distributes the remaining assets as directed in the trust document.
The following are some of the benefits afforded by a Joint Trust:
No court involvement or supervision.
Simplicity of one document for smooth transition through the lives and deaths of both spouses.
Allows both spouses to work together as trustees of one trust, similar to the way they work with a joint account.
No concern about whether a particular asset is owned by one of the spouses or by one of the spouses' separate Revocable Living Trusts. All assets are simply owned by the Joint Trust.
No transfers after the death of the first spouse to die. This minimizes advisors' fees and other costs and is a key advantage.
If you would like to know about Joint Trusts, we would be happy to help!