What is a Joint Trust?

Few people go into marriage expecting it to end in divorce, especially when you have kids. But more than half of first marriages end in divorce, and many divorcees marry for a second time.

Before you blend your families together, discussing what will happen when one or both of you pass away is essential. One way to ensure your desires are met when you die is to create a trust. A joint trust may be a solution, as it is a way to avoid probate and pass on assets to your beneficiaries.

A joint trust is a single trust created and funded that covers both spouses. The spouses are co-trustees, and the trust can include individual and joint property and assets. 

How Does a Joint Trust Work?

With a joint trust, two people, usually spouses, become co-trustees to a single trust. When the first spouse dies, the surviving spouse is now the sole trustee and manager of the trust.

Once the remaining spouse passes away, the joint trust cannot be changed and is now an irrevocable trust. The designated successor trustee is now the manager of the trust. They are responsible for distributing the assets to the beneficiaries under the trust document instructions.

Who Should Have a Joint Trust?

There are benefits to a joint trust between spouses, but it isn’t a solution for every marriage. 

In community property states, joint trusts are especially beneficial. Since both spouses own all property and assets acquired after marriage, a joint trust can make it easier to distribute assets upon death. Maryland is not a community property state, so this may not be as beneficial to Maryland residents entering a first or second marriage.

A joint trust is usually easier to maintain than two separate trusts and is more cost-effective. A joint revocable trust between spouses allows for asset and term changes while both are still alive.

Both spouses have equal control over the trust and the assets involved. You should only consider a joint trust if you expect this marriage to last until death. If you die first, your spouse is the sole owner of the trust. Logistically, dividing assets within a joint trust can be challenging if you divorce.

Who Shouldn’t Have a Joint Trust?

Both spouses must agree on any changes or adjustments within the joint trust. If you want to handle your assets differently than your spouse, a joint trust may not be for you.

If either of you expects a large amount of money at any point in the future, you may want to rethink a joint trust. It could affect the amount of estate tax due. If you improperly draft the trust, it could also disqualify you from the marital deduction.

If you or your spouse get sued or owe money to someone or an entity, like the IRS, a joint trust may not be in your best interest. Creditors can seize assets from a joint revocable trust, even if the debt is just for one spouse.

How Can I Create a Joint Trust?

Creating a properly executed joint trust is not easy. To ensure it’s enforceable and properly drafted, it’s best to hire an estate attorney. Schedule a consultation with Mummert Law to answer your trust questions, find out if a joint trust is right for you, and create one.

Separate Revocable Trusts

When you have children and have been through a divorce, it’s natural to be apprehensive about your kids’ future if you decide to marry again. A second marriage often requires much more planning than just a wedding when children are involved. This is especially true if you have assets you want to pass along to your children when you pass away.

If you were to pass away first and didn’t implement a plan, your children could unintentionally get disinherited. A trust may be a solution to ensure your share goes to your children from your first marriage.

What is a Revocable Living Trust?

A living trust, also called a revocable trust, is an account that holds the assets and funds you place in it throughout your lifetime. You can put your home, car, and other assets in the trust’s name. 

While alive, you can add, remove or make changes to the trust as often as you like. Once you pass away, the trust becomes irrevocable, and no changes can be made. The designated trustee will then distribute the trust assets and funds per your instructions.

Should We Create a Joint Trust or Separate Revocable Trust?

If you and your second spouse want everything equal, a joint trust may be the right option. But if you want your children to receive your assets or you and your spouse have different ideas for allocation, two separate trusts are advisable. It’s also the best solution if you plan to keep your finances separate. If you have assets and property separately going into the marriage, you may wish to keep them in your family.

There are other benefits to having separate spouse trusts. If your spouse is in financial trouble and has creditors coming after them, having a separate trust can shield your assets from creditor access. In a joint trust, everything is up for grabs to pay for a debt if a creditor comes knocking.

Suppose you or your spouse expect to receive an individual inheritance you’d like to keep separate. In that case, a separate trust is the best choice. A joint trust makes the inheritance equally available to your spouse.

Perhaps the most practical reason to create a separate trust is for tax savings. Maryland has an estate and inheritance tax, often referred to as a death tax. Your heirs may have to pay estate and inheritance tax if your net worth exceeds Maryland’s exemption amount. However, separate spousal trusts allow you to double the tax exemption amount, which could reduce or even eliminate the amount of taxes they owe.

Ready to Set Up Your Separate Spouse Trusts?

Having children from a prior marriage can make finances tricky. If you think two separate spouse trusts are the way to go, are leaning towards a joint trust, or aren’t sure which is the best choice for your situation, contact Mummert Law to schedule a consultation. We can help you figure out which trust solution is best for your family and set them up correctly so there’s no chance of a dispute later.