When you’re considering setting up a trust to avoid probate, you’ll be “sold” a living revocable trust. A married couple can have individual trusts or joint trusts. Joint trusts will have only one physical trust document. An individual trust for the husband and an individual trust for the wife will usually be created using two separate trust documents. However, a single document could be used to describe two separate trusts.
A joint revocable trust is probably the easiest form of living revocable trusts for a married couple to use. A joint revocable trust merges the estate planning of a couple using a single trust document.
Joint trusts and individual trusts each have advantages and disadvantages. I haven’t seen that one choice is better than the other. It just depends upon what you want. In my book, Protecting Your Financial Future, I am very careful to give you advantages and disadvantages, because I don’t care if you do a living revocable trust or not.
Whether you use a joint revocable living trust or single living trusts, they are one of the basic tools you need to protect your family.
Joint Trusts vs. Separate Trusts
Joint revocable trusts are easier to “manage” during the period where both spouses are alive. The couple doesn’t have to divide up assets into separate trusts. All of the couple’s assets are simply transferred to the one joint revocable living trust, and the couple will continue to “manage” the assets essentially as they did prior to setting up the joint revocable living trust.
Joint revocable living trusts are more difficult to “manage” after the death of the first spouse to die. If the joint trust is set up to take advantage of the marital deduction and the exemption equivalent (estate tax laws), then the joint living trust will have to divide itself into two trusts – a marital trust and a shelter trust – after the death of the first spouse. Making that division of the joint revocable trust is time consuming and costly.
On the other hand, if you don’t have a joint trust and actually have two trusts, the assets have to be divided between the two trusts during your life. The division of assets between the two individual trusts throughout the couple’s lives takes some thought. If the trusts aren’t evenly balanced, there can be big estate tax problems.
It seems to be easier for most couples to use a joint trust and keep the assets together during the couple’s life. Then when the first spouse to die actually dies, the surviving spouse can let the accountants and attorneys divide things up into the two trusts.
You should note that even if you have two separate trusts, the division of the marital trust and the shelter trust still needs to be made when the first spouse dies. The cost is going to be a little less than if you had a joint revocable trust, but not a lot less.
Joint Revocable Living Trust and Asset Protection
If you are worried about asset protection, then individual trusts may be better for you than joint living trusts. It may be window dressing, but single trusts give the illusion of making a clearer separation of assets between spouses than joint trusts do.
Actually, you can draft a living trust so it is a joint trust, but the trust document can be written to also include separate trusts. There is only one document, but it describes a joint revocable trust and then it describes separate trusts for each spouse. So, technically the one trust document creates a joint revocable living trust and then a separate trust for the husband and a separate trust for the wife.
Joint trusts probably shouldn’t be used between couples in a “common law marriage” or alternative lifestyle couples. The option of creating the marital trust at the death of the first member of the couple to die just isn’t there. It turns out to be a real mess to try and divide the assets in a joint trust at the first death of the two individuals who are not legally married. Plus, in this situation the joint revocable trust can be an estate tax disaster. Just use separate trusts and make the division of assets during your lifetimes.
Division of a Joint Trust at Death
This article has talked about the division of a joint trust at the death of the first spouse to die. The division will create a shelter trust and a marital trust.
You should note that whether you have joint trusts or an individual trust, at the death of the first spouse, a shelter trust needs to be created to “shelter” the exemption equivalent amount. The exemption equivalent amount is the value of property that can be passed by an individual at death without actually having an estate tax payable by the individual’s estate. The marital trust will be created to move assets above the exemption equivalent amount to the surviving spouse estate tax free.
In the final analysis, joint trusts are probably the preferred form of living revocable trusts that Mom and Pop America should be using. My book, Protecting Your Financial Future, walks you through all your choices. It’s written in story format and has been a Time Warner Book-of-the-month Club book. It’s a great read.
(From Lydia on 2011/07/13) I am married in California and have real estate that my husband and I hold jointly. He refuses to think about estate planning and doesn’t seem to care about the tax consequences that may be left to our children. Can I proceed to create a living revocable trust without him?
In reply to Lydia. (2011/07/13)
Technically you can write your own trust. But in reality it will not work well as it could if you do your estate planning together. Your trust will only work for your family if your husband is the first to die. California is a community property state, so if you die first all of your joint property will go to your husband. The trust will save more than just taxes, if your husband dies intestate, your family will then have to go to Court and the Judge will decide where the property goes. Why does your husband refuse to get a trust? Cost? Time?
When you have a joint living trust, and one person dies, can you pick and choose which assets will be transferred to the marital trusts to equal the exemption amount or 50% of fair market value of all assets, or are you required to transfer 50% interest in each asset held by the trust?
I live in a common law state not a community property state.
Rick,
It depends on how the trust is written. Most trusts will allow the surviving trustee to decide which assets get put into the marital trust.
I am married but estranged in Pennsylvania. My house is still in both our names. We have 2 grown children. We/I would like to leave the house to one child. Can I create an individual revocable living trust to accomplish this, or does it have to be a joint trust since the house is still held jointly? Thank you. Great website, I’ve learned a lot already!
Linda,
You can create your own trust and have the property go to one of the children. The problem is that if you own the home as joint tenants with your spouse then your spouse would get the house if they survived you. The trust is only controlling if you are the only owner or if the home is owned as tenants in common. If you survive your spouse then you would get the home and it would then go according to your trust.
My husband and I each have a revocable trust. He is the trustee and I will be trustee should he die first. He is wanting to change the trust and the way the assets are distributed when we die. I do not want to. He says he is forgoing to change his trust and will do it his way without me. Can he do that?
Katrina,
It depends on what is in the trust. Some trusts will allow him to make the changes but other will require you to sign off on it. You will need to read the trust and see what it says.
Thinking of setting up a trust,married but have a big inheritance with stocks and a home that was sold after my mom died.My moms wishes were my husband should not get any of her money,, All to go to my children upon my death, Not the best of marriage but still together, Right now have myself on bank accounts and stocks with beneficiary is my children, do I do a separate living trust , ? Husband of course is saying joint, don’t want him getting my moms money , please advise ,
Sharon,
When you inherit assets they are considered separate property. In order to preserve it as separate property, it needs to remain separate. That means that your spouse cannot ever be a joint owner of the assets. Also, you have to be careful to not mix the inherited assets with marital assets. You will need a separate trust to hold the assets you inherited from your mother.
My wife and I are retired and have no kids. Our house is owned jointly with no mortgage. We would like create two separate revocable trusts so the house and my 401k is in her trust. Other rollover IRA’s and property in another state will be in my revocable trusts. If I die before my wife, the assets in my trust go to my relatives. If my wife passes first, the 401k goes to her family members. I would continue to stay in the house which would go to her relatives after I pass on.
I’m thinking the trusts would only have to include our home and the out-of-state property. The 401k and IRA’s would be handled via beneficiary designations.
Would appreciate your thoughts or comments.
Travis,
You can have two different trusts for a husband and wife if you would like. Also, the 401k and IRA do not go into the trust as you said, they have beneficiaries already designated. You can also do all of this with one trust. It just has to be drafted correctly to make sure that what you want to happen will happen.
My wife has a Revocable Trust with me as the beneficiary. The trust fully owns an LLC which we both operate. Can the net income from the LLC be fully passed through to the trust and split 50/50 so we both pay equally into Social Security? And can we file MFJ?
Marty,
I would have to know more about what is actually written in the trust to know the answer.
My wife and I are retired drawing Social Security. We have two married children, the house is owned jointly with no mortgage, and a brokerage IRA account, and a saving money market account.
We are thinking to create a joint leaving trust leaving to both our children equal amount of all assets.
What your recommend……..
Sounds like a good idea. A simple revocable trust that is set up correctly will protect your assets from probate and make it easier to pass on inheritance to your children.
When a spouse dies, what should be done with the joint revocable trust?
Jeanette,
At the death of one of the spouses, the terms of the trust will tell you what to do. Some trusts split into a shelter trust and a marital trust. Other trusts just allow the surviving spouse to go on as if nothing happened. Read the trust.
My husband and I have been together for 10 years. We got married 3 years ago rather late in life and we both acquired quite a bit in the way of assets when we got together including our two houses (we are keeping both). We are interested in setting up a revocable trust and not terribly concerned about liability. Since our assets are already owned individually, would it make more sense to establish individual trusts instead of a joint trust? My husband is fine with a joint trust (even though he has substantially more than me and he is quite a bit older) but for me it feels strange pooling assets. I initially thought a joint trust would provide fewer hassles for the survivor but after reading your article I am not so sure… Thanks
Teri,
It is always good to keep property separate. Love has nothing to do with property ownership. Even if you are in a community property state, you can keep property separate which was brought into the marriage. That will give the property liability protection from the problems of the other spouse. You can have a joint trust with a his property division and a her property division. That is the way we design trusts for most of our clients. We can design trusts for anyone in any state. It is certainly ok for you to have a trust for husband and a trust for wife. Two separate trusts created by two different documents have advantages and joint trusts with different divisions of the trust (essentially different trusts created by the same documents) have advantages. The advantages and disadvantages don’t clearly say the single document is better or worse that the two separate documents. It is almost six of one and half dozen of another, to say it a different way.
With portability of the estate tax exemption between spouses becoming a permanent part of federal estate tax in 2013, does this negate the need to divide a joint revocable living trust into a a marital trust and a shelter trust after the death of the first spouse in order to take advantage of the full estate tax exemption for couples, and instead the joint revocable trust would continue?
For federal tax purposes you don’t need to have a split trust any more as long as you actually make the portability election. If the state you live in has an estate tax then you will still need the split trust to get a double amount of the state estate tax.
My husband and I are wanting to set up a Living trust (revocable)?.We have a house with a mortgage cash and personal items, that would be shared between his 2 daughter and my niece equally.I do not have a great relationship with his daughters and want all my jewelry and all items in the house to go to my niece, which he agreed. The house would be sold and divided between all 3 girls. He wants his oldest daughter to be the executor. What is my best option as far as what type of trust to go with and estimated price to have something drawn up.
Delores,
You have a problem. A standard living revocable trust can be set up so that the property can go as you describe. It all needs to be detailed in the trust. The problem is the surviving spouse could change the trust and circumvent the whole thing. Maybe a his trust and a her trust – not a joint trust – would be better. The assets in one trust would lock down and be irrevocable at the death of the grantor (guy you or husband) who set up the trust. Your trust could be given a third tenant in common interest in the property and his a 2/3rd interest. If you are sure that the spouse will carry out the plan the standard joint living revocable trust is sufficient. There is always the issue of another marriage after one of you dies. Having two trusts, his and hers, would possibly solve that also.
This is only good if everyone concerned is fully aware of the trust and it’s intention. Mom and dad had separate trusts exactly the same mom died in 2008 brother was trustee dad took out have her Edward Jones acct a month later and close the acct entirely in 2011. Brother not aware of either trust , dad died in 2017 dad assigned Ed jones trust co to become trustee and died 6 mos later. Meanwhile “caretaker” set herself up with the 401k and Ira as beneficiary in the last 6 mos. you must hear these horror stories all the time. That’s another book.
Belinda,
You are right. Some estates are horrorrrrr stories. I have gone to great length to insure that when my wife dies (she has ALS) even I don’t get caught in a mess with a second marriage or my own incompetence. When she dies, my son and I become joint trustees. Neither can act alone. That way the caretaker can’t get me to change anything when I am older and more senile. Sorry about your mess.
This is a great site. Very insightful:) My problem: property purchased prior to marriage. Wife’s grandparents helped with down payment and we took on the property as joint tenants. Single Man, Single Woman, Granparents trust. We get married. (hooray!) Shortly after I was confronted with a possible bankruptcy due to some business venture. I decided that I would quitclaim off the property to protect the grandparents down payment on our house (I did not realize until i got a bk lawyer that this was unnecessary) What I believed was that the property interest was still 50/50 with my wife since we were in a community property state. 5 years later, the grandparents quit claim their interest to her as her sole and separate property and then she quit claimed it into our joint revocable trust. 5 years later, we are getting divorced (booo!) So, of course her claim, after she has spoken with an attorney, is that the house is hers and hers alone. (We had an MSA that split everything equally until her lawyer “educated” her otherwise.) Obviously, I see it as we have treated it over the years but I guess my question is, how would you classify it?
I am not arguing that the down payment is mine, that would be returned to her or the grandparents, just that the equity gained would be split after down payment is taken off the top. All property taxes and mortgage was paid for with community money. There is no specific language in trust or transmutation into out trust stating it as separate.
Michael,
It is all up to the divorce court. Normally, things brought into the marriage are the property of the person that had the property before the marriage. I am not a divorce attorney, so I have no clue.
Mom and Dad had a joint revocable trust. Dad recently passed away. Now all property goes to Mom. is the trust still revocable? Can mom take property out of the trust and gift or sell it?
Jammee,
Whether or not the trust is still revocable depends upon the trust document language. What does it say? She should be able to take assets out of the trust and use them as she wishes. It will say she can take it out, so the trustee shouldn’t probably transfer assets directly to someone other than mom. Here again, it depends upon what the trust document says.
My Mother wants me to have my name added to her deed for her home so that when she passes it ensures the home stays in the family. However, I am married and I wonder if it is best for her to do a revocable trust? If Mom and myself pass away I can definitely count on my husband to do the right thing. However, if he passes too will his family have a share in My Mother’s estate based on joint tenancy? By the way my husband and I have no children.
Rochelle,
The living revocable trust is definitely the way to go. It is a tax disaster for you to have her put her name on the house. If you receive it because she dies, then the house gets a step up in basis to the value on the date of her death. If she puts your name on the deed that is a gift of half the house, and a gift has to take the donor’s original basis. See my YouTube channel for some more detailed info. https://youtu.be/xOUWqYh07Dc
My husband and I have just set up separate trusts.
Both of our names are on all accounts. Including our savings account. How do we put these accounts into both of our trusts?
Also when we jointly buy property, how do we have the property in both of our trusts. Ultimately we both want each of our trust assets to be devided between both of our children equally.
Kerry,
It sounds like a joint trust may have served you better than two separate trusts. But you didn’t do anything wrong. Each trust should be able to be a joint tenant on the bank account. I just talked to a lady today that is trying to do exactly that. The bank has been reviewing the trusts for three weeks. The bank makes the rules, and you play by their rules. If it is really bad, go to another bank. The properties can be divided so each trust owns a half interest in the property. The trusts could be tenants in common, or you could have one or the other trust own the property. I assume when one of you dies, the other will become the successor trustee and control the property anyway. If it is not his and her children, then just have the trusts go to the kids when both of you are dead.
Lee – We are a married couple (36 years) with two children in their 20’s. Neither of us were previously married. We own a home with no mortgage and the title is currently held in joint tenancy. We have several accounts containing stocks, bonds and cash. We have a joint taxable account, and individual IRA rollover accounts as well as 401k’s. A couple of years ago I inherited a small 6 figure amount when my father died. We live in California, a common property state. I have three questions. 1.) Should I put the inherited money in a separate account or trust? I don’t feel a need to control those funds after my death. 2.) I think I have read you say something about not worrying about the IRA’s and 401k’s because they already have beneficiaries designated. Should they be put into the trust(s)? And third, do you recommend we have a single joint trust, or two separate trusts? We don’t intend to have any complicated instructions. Just leaving our assets to our two children with some age stipulations. Thanks in advance for your response.
Jacob,
Referring to your numbered questions:
1) You should probably keep it separate, for asset protection purposes. If she was in an accident and got sued, your assets wouldn’t be available to satisfy the claim. Inherited property can be kept as separate property. You can leave it to your kids or spouse.
2) Keep them in the IRAs and 401(k). They are asset protected. They need to be in a person’s name, not a trust’s name. You could make the trust the beneficiary, but usually you name people as the beneficiaries and the trust is the second or third choice as a beneficiary.
3) You can do either one. My documents are all joint documents. The joint may be a little easier if you have a simple estate.
Lee
My husband and I are separating and likely divorcing, although it is amicable. We own a business we run together, quite a few income producing rental properties and an online business. Would a joint revocable trust be an option as a way allocate the income from our shared assets without having to sell or split them up?
Jessica,
The divorce will divide things up. I would make living revocable trusts after the divorce to make sure that property isn’t probated when you die or he dies. The business ownerships and other assets can be held in your living revocable trusts and the income can be split according to the divorce.
Is.our home automatically included in our Living Revocable Trust? Many things are mentioned but not our house.
No mortgage, no money owed, three great kids with families of their own!
Jan,
Nothing is “automatically” included in a living revocable trust. each asset has to be transferred into the trust. Real property has to be moved into the trust using a deed. The deed will go from you as grantor to the trust as the new owner of the property. Use name of trust, date of trust, and name of trustee on the deed.
I inherited a home that I would like to leave as an asset to help ensure my son’s future (as in rental income=Calif. beach town) but I also have a daughter I’d like to make a provision for. I don’t want to slight our daughter in the least. But her brother has some special needs and I feel responsible for him, even after I’m gone.
From one of your other post-answers, you said inherited property should stay separate. Since they are 50/50 to me & my husband’s (their dad) joint trust on our primary home, what would you recommend? I’m confused how to proceed, fairly. Thank you!
Margie,
I am not sure what the question really is. Use a living revocable trust. In California it is ok to have a joint trust. You should leave the property to your son in a special needs trust so it doesn’t affect his government assistance, if any. You can carry a life insurance policy to make sure your daughter gets an equal inheritance. Or maybe the rest of the estate will equal out to what the son got.
Sorry my question was unclear, but you were able to sort through and give me a great answer! I didn’t want our son to have to sell the beach-home to give our daughter an equal 1/2. Leaving her an insurance policy (something I hadn’t considered) would level the field fairly. My husband will have our primary home & he can keep the trust to divide evenly at his time of death, or change it I suppose if he remarries (& why I wanted my son protected in perpetuity.) Thank you!
Margie
glad it helped
My husband and I are joint owners of our home. I just discovered that he is setting up a living revocable trust and has decided to put his 50% of the house into that trust. How does that affect me as a surviving spouse? We live in Florida.
Sharon,
It depends upon what type of joint ownership you have. If it is a joint tenants with rights of survivorship it would be weird, because the trust doesn’t die. If it is tenants in common, then it would be fine. Why not just have one trust and put the house in it. I assume you would be the successor trustee and beneficiary of his half the house. If he gives it to his kids or whatever, then you may have a problem.
My husband and I want to have a joint revocable trust. We will put all of our joint assets into it and also, my separate checking account and investment account (both inherited and gifted funds over the years and both POD to our daughter). I have made it a point to keep these separate. I have three questions:
1. If we one day divorce, will he get half of my separate accounts because I put them into the our joint trust?
2. If I list those accounts on the trust “schedule” as to be distributed to our daughter, could he change that somehow after I died?
3. I was advised a postnuptial in addition to detailed instructions on the schedule is ironclad to protect my separate assets but is this truly necessary?
We live in Oregon.
Thank you so much for your insight!