What is the difference between a separate and joint trust?

August 11, 2022
What is the difference between a separate and joint trust?

What is the difference between a separate and joint trust?

Trusts can be really useful in estate planning because they can help avoid probate, protect privacy, deal with gifts to minors or disabled individuals, and help you control how your property is distributed to others after death. It has a lot more flexibility than having a will alone.  While trusts cost more to make up front, they end up saving a lot of money in the long run by helping avoid the probate process.  Trusts can also help you manage your property in the event of disability, rather than relying on a power of attorney agreement or having to go through the guardianship process.  Trusts are the Swiss Army Knife of estate planning. When a married couple designs a trust-based estate plan, they have an important decision to make:  Should they make a joint trust have separate trusts?

“Trusts are the Swiss Army Knife of estate planning.”

So, when should you have a separate trusts vs a joint trust?

The first thing to consider is the nature of the property the couple owns. If each spouse has a lot of separate property, such as from an inheritance, prior relationship, or there is a prenuptial agreement in place, then separate trust for each spouse might be more appropriate. Although property in a joint trust can still technically be "separate property" and be segregated while in a joint trust (i.e., property in a joint trust is not automatically jointly owned property), as you might guess it can make things complicated. Simplicity is a virtue. However, if we are talking about a couple with a long-term marriage who do not have children from prior relationships, a joint trust is probably the best option.

Another thing to consider is protection of the assets from creditors. Property in a joint trust could become subject to the claims of creditors of just one of the spouses.  However, with separate trusts, the creditor of one spouse would generally not be able to attach a judgment to the separate trust of the other spouse.  Notwithstanding this issue, if property in the joint trust continues to be owned by the spouses as a tenancy by the entireties (joint tenancy with right of survivorship for married couples in Florida), it still may be protected from the creditors of only one spouse.  But, this raises some more complicated legal issues and is definitely not "simple." So, if asset protection is a major concern, separate trusts may be more appropriate than a joint trust.

One other issue is that property in a joint trust might be easier to manage for a married couple.  There is only one trust to deal with and all of the property can be transferred into that trust rather than having to track different schedules of property for multiple trusts. However, after the death of one spouse separate trusts may be easier to manage because the property is already divided into different shares. Depending on how the trust is structured, the trust might have to be separated into two trusts after the death of the first spouse. An additional consideration is that with a joint trust that does not get divided, the surviving spouse might be able to amend that trust after the death of the first spouse.  However, with separate trusts, the trust of the deceased spouse becomes irrevocable at death and cannot be changed by the surviving spouse in most circumstances.

There are a lot of considerations when designed a trust-based estate plan. While there is some good DIY software out there, the issue is not usually with the technical language inserted by the program, the biggest problems are that the overall trust plan is not designed properly from the beginning and the trusts might not be accomplishing what the client really wants. An experienced estate planning attorney can help you achieve your goals a setup a plan that works for you in an efficient way.

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