Navigating the complexities of trusts for married couples is a common concern in estate planning. You might be wondering whether you and your spouse should establish one joint trust or separate trusts.. Trusts are generally a good strategy if you want a comprehensive, complete, and flexible estate plan. Most people will set up a trust to avoid probate, keep their estate plan private, and make it seamless for their successor trustee to step into their shoes in the event of incapacity or death.
As a married couple, you need to decide whether you want to create one joint trust or if you will each do a separate trust. There are pros and cons to both options but be sure to discuss these considerations and what’s important to you, your family, and your legacy with your estate planning attorney. Below are initial considerations to think about prior to your consultation.
Asset Protection
With a joint trust, all marital assets are together in a single trust and generally this means that there will be less protection if there’s ever a judgment or creditor of one spouse. It’s important to note that separate trusts do not automatically insulate one spouse and some states – Maryland in particular – will not shield the assets of one spouse.
Separate Assets
It can be a wise option for couples who own separate property from prior marriages or an inheritance to keep assets separate. It can assist in the separation of assets if you and your spouse have a prenuptial agreement that already dictates property and earnings should you separate from your current spouse.
Expense and Administration
The administration of separate trusts can be more complicated and expensive. Generally, it will cost more to set up and fund two separate trusts instead of one joint trust. If a couple wishes to keep their marital estate as a singular unit, separate trusts can still accommodate this by naming each spouse as the other’s co-trustee which allows both spouses to maintain control of all assets, despite being located in separate trusts. Joint trusts are easier to manage during a couple’s lifetime as assets are rolled into one trust and management of those assets is similar to pre-trust ownership if they owned their assets jointly. Both spouses will have equal access and control of the assets held by the trust.
Different Beneficiaries
Separate trusts may be a good option if you and your spouse have different beneficiaries. This occurs a lot with blended families or with couples that do not have any direct descendants. The trust of the spouse that passes away first can continue to provide for the surviving spouse but ultimately have the remaining trust assets go to their beneficiaries. A joint trust can have different beneficiaries for each spouse but the administration of the trust is much more complicated at the death of the first spouse. For this reason, we generally recommend having separate trusts when beneficiaries are not the same for the couple.
Potential Volatility between Spouses
No one marries with the plan to separate and divorce eventually but it is a factor that needs to be considered. The estate plan updates that are required after a couple’s divorce are much easier for a couple with separate trusts as the assets are already separately titled. A joint trust for a divorcing couple would need to be un-funded back into the couple’s names by their divorce terms and the joint trust should be revoked.
Navigating trusts for married couples and determining whether to establish one or two trusts can be quite complex for several reasons, as you can see. Be sure to discuss this during your consultation with an attorney. If you are ready to address your estate planning needs today, contact Sinclair Prosser Gasior to schedule your consultation today.
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