Will a Joint Living Trust Protect Assets?
A living trust is an estate planning tool that helps ensure your assets pass to those individuals, who you want to receive them, upon your death. A joint living trust is a trust document designed for a married couple, as a contract between you (as the grantors) and your trustees, which are usually you and your spouse. Generally, a joint living trust will not protect assets from creditors, judgments or other lawsuits.
Other People Are Reading
-
Elements of a Living Trust
-
For a living trust to be valid, it must contain four elements: the grantor or the person creating the trust who owns the assets being placed in the trust; the assets or property being placed in the trust, such as real property, jewelry, stocks, bonds or money; the trustee or the person managing the trust and the assets within it, including any distribution of assets; and the beneficiaries or the individuals who will benefit, or receive payments from the trust. With a joint living trust, you and your spouse may also choose a successor trustee to manage the trust after you have both died. Depending on the type of living trust you establish, creditors may be able to access the assets in your trust, for payment of debts.
Revocable Trust
-
Two primary types of joint living trusts can generally be created: revocable or irrevocable. A revocable living trust is one that can be changed or revoked at any time, while the grantor(s) are still alive. The grantor retains all control over the terms and assets contained within the trust, which means a creditor who has a judgment against you or your spouse for an unpaid debt is likely to seize assets from your trust to satisfy the debt. If you or your spouse dies or becomes mentally incapacitated, the other spouse continues management of the trust.
-
Irrevocable Trust
-
An irrevocable trust usually cannot be changed once it is created, and if the assets in the trust are sold, the trust is terminated. Revocable living trusts usually convert to irrevocable trusts upon the death of the grantor. Essentially, when you place assets into an irrevocable living trust, you are giving up control of those assets. An irrevocable joint living trust can protect your assets from creditor judgments and other lawsuits, but trust beneficiaries can still access the assets if necessary.
Probate
-
One of the primary reasons couples choose to establish a joint living trust is to avoid estate taxes and a long, drawn-out probate period for their beneficiaries. Unlike wills, which must go through probate (verification of authenticity in a probate court) upon your death, a living trust avoids the probate process.
Estate Taxes
-
A federal tax known as estate tax is a transfer tax that must be paid upon the transfer of a deceased person's assets to the beneficiaries. The taxation applies to the portion of the value of an estate that is above $600,000 or up to double that amount when the assets are passed to a spouse. Revocable joint living trusts will not protect assets from an estate or inheritance tax, but an irrevocable joint living trust will, as the deceased did not own the assets at the time of death. Title to the assets belonged to the trust and its beneficiaries.
-
References
Resources
- Photo Credit George Doyle/Stockbyte/Getty Images
