A trust is a legal agreement in which a trustor transfers assets to a trustee. A joint trust is a living trust created by a married couple that designates both spouses as grantors of the trust. There are several advantages and disadvantages in regards to entering into a joint trust, so each couple will need to decide if this type of arrangement is suitable for their needs.
A joint trust generally contains provisions that benefit both spouses while they are living as well as the surviving spouse in the incident of death. Provisions may also be included for descendants or beneficiaries that the couple requests to receive assets in the event of death. Joint trusts typically serve as the primary estate planning document and are used in the place of standard wills.
Property is generally not kept separate in a joint trust for tax deduction purposes. Most joint trusts are designed to reduce property taxes for the surviving spouse. This may also provide a federal tax shelter from death taxes.
A joint trust may be beneficial in the instance that one of the trustees becomes ill or incompetent. In this case, a pre-selected successor trustee may take over management of the trust assets. This may reduce some of the complications faced when relying on a power of attorney.
Typically, it is up to the couple to decide under what circumstances they will no longer be able to carry out their own affairs. Most joint trusts require an official letter from two doctors stating that one or both parties are incapacitated before turning over power to a successor trustee. Some couples may rely on family members to serve as successor trustees, while in other cases it may be more appropriate to designate a business partner or co-worker. It is not uncommon for a business partner to act as successor if there is a company or business that remains fully operational.
A joint trust is generally desirable when one person is responsible for generating income to support the couple. Individual trusts are more beneficial for helping both parties develop financial experience and credit history. In some cases it may be easier for beneficiaries to access individual funds rather than access joint trust funds.
Joint trusts may also be considerably more difficult to separate in the event of a divorce. Even with a prenuptial agreement, separating property and other assets may result in tax and asset loss. It is also possible that both parties may become liable for the creditor claims of only one spouse. Careful consultation with a trusted attorney can help eliminate risks and provide the most suitable trusts for all parties involved.
