What is a Living Trust?
A revocable living trust is the foundation of estate planning in Florida. The living trust is a trust established by a trustmaker (a/k/a settlor or grantor) for the benefit of the trustmaker during their lifetime, and for the benefit of their surviving spouse and children after their death. The living trust has several advantages over a traditional last will and testament, such as avoiding probate and guardianship proceedings.
What is a Joint Living Trust?
Married couples may have a joint living trust agreement. A joint living trust is a trust agreement that incorporates the testamentary wishes of both spouses in a single document. The joint living trust provides terms and conditions for the administration of each spouse’s separately owned property as well as their joint property.
Technically, in Florida, there is no such thing as a “joint trust.” Just as each person has their own will, power of attorney, living will, and other estate planning directives, each person has a unique trust that is their own. A joint trust agreement is a document that combines the common testamentary provisions for each spouse into a single trust agreement.
A joint living trust is more difficult to administer and account for than an individual trust. A joint trust must keep accounts for different types of spouses’ property.
A good way to understand the joint trust is to think of the trust as containing several “pots” of assets. Each spouse has a pot within the joint trust that holds property they held in their individual names before the property was assigned to the trust. There is a third pot under the trust agreement that holds assets jointly owned before assignment to the trust. Upon the death of the first spouse to die, each pot is administered differently. At the second death, the joint trust usually implements an agreed testamentary plan for all trust property.
If each spouse creates a separate living trust, instead of a joint trust, then their trust contains only the property they owned individually plus their share of any joint property that both spouses convey to one of their separate trusts. Each married trustmaker has no interest in property conveyed to their spouse’s separate living trust.
When Should You Use a Joint Trust?
A joint trust is appropriate for a typical married couple with common children in a longstanding marriage. In this case, most family assets are marital property are acquired jointly during the marriage. The couple probably agrees on their testamentary plan for their property after they are both deceased, and this plan usually leaves the property to their children.
In Florida, a joint living trust maintains asset protection for each individual spouse so long as the trust is drafted in a way that maintains tenants by entireties protection for joint property assigned to the living trust.
When Should You Use a Separate Trust?
Separate trusts are appropriate in blended families when each spouse has children from a prior marriage and where each spouse has acquired their separate assets before the marriage. Each spouse wants to make sure their own children are provided for after they die. They may be reluctant to contribute the property to a joint trust agreement where the surviving spouse may modify or fail to carry out their testamentary plan for their own property and children.
Sometimes, separate trusts are appropriate for asset protection. A living trust provides no asset protection during the life of the trustmaker.
Where one spouse is in a high-risk business or profession, and the other spouse is not significantly exposed to legal risk, the couple may want separate property ownership. The couple can divide assets fairly equally in a way that assigns the high-risk spouse ownership of exempt assets, such as homestead property, annuities, and retirement accounts, and assigns to the low-risk spouse non-exempt assets such as real estate investment, cash accounts, and non-qualified securities. To maintain the separate property, each spouse would have their separate living trust agreement and fund their separate property into their own trust.
Even in a long-standing marriage with common children, separate trusts are preferred when one spouse has disproportionate family wealth. If one or the other spouse has acquired—or expects to inherit—a large sum of money from their parents, that spouse may want to segregate their inheritance or may want control over the disposition of the money after their death.
The two spouses’ testamentary plans may be significantly different. The wealthy spouse can design a plan that provides generously for their surviving spouse but also gives some of the family wealth to the trustmaker’s own relatives, personal friends, or charities. The other spouse’s trust need not leave any money for the wealthy spouse—who has ample family wealth—and instead leave their share of joint property and separate property directly to children and lineal descendants.
How To Decide
The choice of separate living trusts or joint trusts for married couples involves several issues and tax considerations. Married couples should ask for a full understanding of the advantages and disadvantages of each living trust arrangement and decide on the solution they believe is practical and beneficial for their unique family situation.