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.