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To address their estate planning needs, married couples may decide to create a joint trust.  In community property states, joint trusts make sense because they consider assets accumulated during the marriage as community assets and require each spouse to have equal management rights over them.  Separate property states may also benefit from joint trusts since they eliminate the need for separate trusts for each spouse.  Each spouse decides what will happen to his or her share of trust assets upon death in a typical joint trust.  In the same way as if the assets were held in separate trusts, they retain control of the assets during their lives. 

Joint trusts are nothing more than two separate trusts governed by one document instead of two.  It is common for clients to prefer joint trusts because they are familiar with joint property.  There are usually three asset schedules in the trust, one for each grantor and one for their community assets.

Joint trust for second marriages

With second marriages, planning a little more complicated. Some spouses want to keep the assets that they bring into the marriage separate so that they have full control over them during the marriage and they can designate who the assets go to upon his or her death. Other second marriage couples are not as concerned about keeping their assets separate or perhaps don’t bring a large amount of assets into the marriage. For those types of couples, a joint trust is a great solution. For couples that desire to keep their assets segregated, an estate planning attorney may suggest to the couple that three trusts be created: one to hold the first spouse’s assets, a second to hold the other spouse’s assets, and a joint trust to hold any assets that are acquired by the couple after the marriage. This type of planning sounds very complicated, but it actually makes things much simpler as one spouse’s assets can be paid to his or her heirs and the second spouse’s assets can be paid to his or her heirs and the assets of the joint trust can be paid to specific beneficiaries (his, hers, ours). In addition, provisions can be made for the surviving spouse to continue to live in the home or receive a designated amount of money, which after the surviving spouse’s death would go to the first spouse’s children or heirs.

Sadly, sometimes a surviving spouse continues to view and use all the assets of the joint trust as their own because they had unrestricted access to the assets during the spouse’s life.  In some cases, the surviving spouse does not realize that, as the Trustee, he or she has fiduciary duties to the remainder beneficiaries as well as a duty to follow the trust’s terms, despite their own self-interest.

Joint trusts can offer certain benefits for married couples.

Here are some of the advantages:

Asset Management: A joint trust allows both spouses to consolidate their assets into a single trust, simplifying the management of their estate. It provides a central entity through which they can hold and control their assets.

Probate Avoidance: One of the primary advantages of a joint trust is that it helps bypass the probate process. When one spouse passes away, the trust assets can pass directly to the surviving spouse without going through probate, saving time, money, and the hassle of a court proceeding.

Privacy: Probate proceedings are typically public, meaning anyone can access the details of the estate. With a joint trust, the distribution of assets remains private, as the trust avoids probate altogether. This can be desirable for couples who value their privacy.

Incapacity Planning: A joint trust can include provisions to address the possibility of one or both spouses becoming incapacitated. It allows the designation of successor trustees who can step in and manage the trust assets on behalf of the incapacitated spouse(s) without the need for court intervention.

Flexibility and Control: Since a joint trust is revocable, both spouses can modify or revoke it during their lifetime as long as they are mentally competent. This flexibility allows them to make changes as circumstances evolve, such as adding or removing assets, updating beneficiaries, or making adjustments to their estate plan.

Family Continuity: By using a joint trust, married couples can plan for the seamless transfer of assets to their chosen beneficiaries upon both spouses’ passing. This can help ensure the financial well-being of the surviving spouse and provide for the next generation or other intended beneficiaries.

Potential Tax Benefits: While the tax implications may vary based on individual circumstances and jurisdiction, a joint trust can offer certain estate planning opportunities, such as maximizing the use of both spouses’ unified estate tax exemption, potentially reducing estate taxes and preserving wealth for future generations.

While joint trusts can offer certain benefits for married couples, they also come with several disadvantages.

Here are some potential drawbacks of a joint trust:

Loss of Individual Control: With a joint trust, both spouses typically have equal control over the assets held within the trust. This means that both parties must agree on all decisions regarding the trust’s management and distribution. If there are differences in financial goals or priorities, it may lead to conflicts and compromises.

Inflexibility: Joint trusts are designed to manage shared assets and distribute them after the death of both spouses. This arrangement can be inflexible if either spouse has specific wishes or wants to address unique estate planning concerns. Individual circumstances or changes in personal situations may not be adequately accounted for within a joint trust.

Estate Tax Implications: For non-community property states, joint trusts may not provide the same level of estate tax planning opportunities as separate trusts. In some cases, separate trusts can allow each spouse to maximize their individual estate tax exemptions, reducing potential tax burdens for their heirs. Joint trusts may not provide this flexibility, potentially resulting in higher tax liabilities.

Survivorship Issues: When one spouse passes away, the joint trust typically becomes irrevocable and may restrict the surviving spouse’s ability to modify or revise the trust’s terms. This lack of flexibility can be problematic if the surviving spouse’s circumstances change or if they wish to make adjustments to their estate plan. It is possible under most circumstances to draft a joint trust so that it doesn’t become irrevocable at the death of the first spouse.

Potential for Disputes: Joint trusts can increase the likelihood of disputes among family members, particularly in blended family situations or when there are conflicts of interest between beneficiaries. The surviving spouse might make decisions that favor their side of the family, leading to disagreements and potential legal battles.

Complexity and Cost: Joint trusts can be more complex to set up and maintain compared to individual trusts. They may require additional legal and administrative work, resulting in higher costs. Separate trusts, on the other hand, allow each spouse to address their specific needs and simplify the overall estate planning process. However, the cost savings mentioned previously may be illusory due to the fact that now two trusts are being administered instead of the one joint trust.

An experienced estate planning attorney can help you determine the best approach based on your specific circumstances and goals and explain the advantages and disadvantages of joint trusts.

Contact Us for Personalized Estate Planning in Southern California

We know discussing end-of-life plans can be difficult, but we approach this delicate conversation with respect and dignity. Our estate planning services cover all areas of elder law and probate based on your specific financial & health situation. If you have questions or concerns regarding your estate plan, probate, special needs planning, or elder law, attorney Dennis M. Sandoval and the Sandoval Legacy Group team are ready to assist you.

Southern California’s Premier Estate Planning Law Firm

With thirty-plus years of experience as an estate planning law firm in Southern California, you will have the most experienced legal minds to guide you. The trusted estate planning lawyers at the Sandoval Legacy Group, a division of Holstrom Block & Parke, A Professional Law Corporation, have offices located throughout Southern California in Orange, Riverside, San Diego, San Bernardino, and Los Angeles counties.  If you have questions or concerns regarding your estate plan, special needs planning, elder law, advanced tax planning, or probate, contact us or give us a call at (888) 502-2881 to schedule a complimentary consultation.