Joint Living Trusts
If you're concerned about how your assets will be managed after your death or in the event you become incapacitated, you may consider creating a trust. A trust is a legal arrangement that allows you to appoint a trustee to oversee your financial affairs. Married couples may consider combining their assets in a joint living trust. Doing so can offer some advantages in terms of taxation and probate.
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Creating a Joint Trust
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Establishing a joint living trust involves creating a written trust agreement, also known as a declaration of trust. In the trust document, you and your spouse are identified as the grantors or settlors of the estate, meaning you own the property that will be transferred into it. You must name the beneficiary of your estate and the person or persons who will serve as trustee. Once the trust is drafted, it must be signed by both spouses and the trustee before you can begin funding it.
Funding a Joint Trust
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Funding a trust means transferring titles or deeds to certain assets to the control of the trustee. For example, you may transfer real estate, bank accounts, investment accounts, stocks, bonds, certificates of deposits, jewelry, artwork or other valuables, life insurance policies, copyrights and patents. With a joint trust, you may classify property as belonging to one spouse only or as community property if you live in a community property state. If you opt to keep your property separate within the trust, you must each make specific provisions for how your assets are to be handled during your lifetime and after your death.
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Joint Trust Advantages
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Combining assets in a joint trust offers several advantages for married couples. First, a joint trust is typically easier to manage than separate trusts while both spouses are still alive. A joint trust also ensures greater privacy in terms of the contents of your estate and helps you avoid the probate process. When an estate enters probate, its contents become a part of the public record. Depending on the size of your estate, a joint living trust can reduce the amount of estate tax owed by the surviving spouse.
Considerations
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Moving assets into a joint trust does not provide absolute protection from creditor claims. Depending on the laws in your state, creditors may pursue claims against property held in a joint trust during your lifetime and in some cases, after your death. Any property held outside the trust will need to be included in a separate pour-over will to ensure that it is transferred to the trust when you die. If you divorce, you and your spouse will have to take steps to dissolve the trust and separate your property, which can be costly and time-consuming. If one of you dies, the joint trust must be split into a marital trust and a shelter trust, which also requires the services of an attorney.
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