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.