Understanding Joint Trusts vs Individual Trusts

If you are married, you and your spouse have a choice of creating a joint trust-based estate plan or one with two individual trusts as the foundation. When a trust is established the person or entity who provides the money or property to establish the trust is called the grantor.

Some trusts are set up by one grantor. However, when a husband and wife establish a trust together, each of them is considered a grantor. This type of trust is called a joint trust because it belongs to the husband and wife jointly.

Why Might a Married Couple Establish a Joint Trust?

As mentioned above, a joint trust simply means that both spouses are grantors of the trust. In other words, both of you set up this one trust together to administer your assets—first after one of you passes away and then after both of you have died.

If you have been married a long time, most of your assets are jointly owned, and your children are the product of this relationship, you may be a suitable candidate for a joint trust. There are economies of scale with having just one trust—both when it is created and after one spouse dies.

Furthermore, some tax benefits may be available with a joint trust that are not available for individual trusts. Holding property in a joint trust may entitle a married couple to these benefits and preserve them for the surviving spouse.

Why Use Individual Trusts?

Using separate, individual trusts can also make very good sense for a married couple, and offer them a number of benefits not available with a joint trust. First, using individual trusts for estate planning can provide a couple with enhanced asset protection.

Holding assets in individual trusts can make it much more difficult for one spouse’s creditors to get to the assets held in the other spouse’s trust. In addition, since a trust automatically becomes irrevocable when the grantor passes away, it will become even more difficult for creditors (or anyone else) to access the assets in your deceased spouse’s (now) irrevocable trust.

Secondly, the administration of an individual trust after a spouse dies is much simpler and more straightforward than that required for a joint trust. The administration of a joint trust after one spouse dies can require a lot of effort to retitle assets, execute new deeds for real property, and establish separate financial accounts to hold the deceased spouse’s separate property. Moreover, there will often be the question, which part of the trust remains subject to the surviving spouse’s amendment, and which part has become truly irrevocable?

Finally, using individual trusts can allow spouses with children from previous relationships to more easily ensure that when they die, the property they brought into the marriage will only be passed on to their own children and remain in their family. This can prevent valuable assets that have been passed down through your family for generations from leaving your family and winding up in the hands of your spouse’s family. For surviving children, the question would be: does the trust give the surviving spouse the ability to withdraw all of the trust principal and establish a new plan, avoiding the original intent of the trust?

As you can see, when not properly set up or administered, joint trusts can have the effect of creating more problems than they solve.

Consult With an Experienced Virginia Estate Planning Attorney

As you can see, using individual trusts can make very good sense in certain situations and offer a number of benefits to a married couple. On the other hand, a joint trust is a wonderful option for many married couples, as it can offer tax advantages that would not be available otherwise.

For help determining whether a joint trust, two individual trusts, or a combination of both is right for your family’s estate planning needs, call our law firm today at (703) 553-2577 or use the contact form to consult with an experienced Virginia estate planning attorney.

The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.