What Is a Joint Living Trust?
A joint living trust is a trust agreement that incorporates the testamentary wishes of both spouses in a single document. The joint living trust agreement provides terms and conditions for the administration of each spouse’s separately owned property as well as their joint property.
Think of the joint 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.
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 property and different pots of assets.
How Are Separate Living Trusts Different from Joint Living Trusts?
If each spouse creates a separate living trust, instead of a joint trust, then each spouse’s living trust contains only the property they owned individually plus their share of any joint property. Each spouse has no interest in or benefit from property conveyed to their spouse’s separate living trust. Joint property with rights of survivorship is severed and divided into separate and equal shares.
The choice of separate living trusts or joint trusts for married couples involves several issues and tax considerations. Married couples should understand 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.
When Is It Best To Use a Joint Living Trust?
A joint trust is best for a typical married couple with common children in a longstanding marriage. In this case, most family assets are marital property acquired jointly during the marriage. The couple probably agree 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 Is It Best to Use Separate Living Trusts?
Separate trusts are best used 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 their 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 where, for example, 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 to divide assets equally between separate living trusts 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.
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 in a separate living trust that controls the disposition of the inherited wealth money death.