If you’re married, you are eligible to use a joint revocable trust instead of having individual trusts. In Wisconsin, which is a community property state, married couples almost always have joint revocable 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 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.
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.
When one spouse dies, 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.
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 does, through probate. Finally, a joint trust does not need to file a separate tax return, as long as one spouse is still living.
However, there are some disadvantages to a joint trust. 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.
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.
For couples whose finances are not overly complex, a joint revocable trust may be a great choice. Schedule a call with Rick Coad to discuss how he can make an estate plan work for you and your family.
Reference: aol.com (May 2, 2022) “Joint Revocable Trust: Estate Planning”