Joint Revocable Trust: Estate Planning

Establishing a joint revocable trust can be an ideal estate planning tool for the benefit of your children, your grandchildren and beyond. Married couples have the possibility of establishing a joint trust instead of simply establishing one in each of their names. Let’s compare the advantages and disadvantages for your needs. A financial advisor can help you create an estate plan for your family’s needs and goals.

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What Is a Trust?

A trust is an arrangement in which a grantor entitles a trustee to distribute their assets to a beneficiary. The grantor and the trustee are often the same person, especially in the case of a revocable living trust. This arrangement provides asset protection, can save time and may reduce paperwork.

A revocable trust or revocable living trust is one that can be amended, changed, or even dissolved. Usually, this type of trust makes the most sense when the grantor is alive and healthy. However, if the grantor dies or is unable to make their own decisions, the trust becomes irrevocable. Not only can an irrevocable trust not be amended or changed, but it also may be inaccessible to creditors in some cases.

What Is a Joint Revocable Trust?

Whereas an ordinary trust has just one trustee, a joint trust has multiple co-trustees. This is a common choice for married couples, especially when the plan is for the surviving spouse to receive 100% of the couple’s assets. A joint trust is revocable while one or both partners live.

When one partner dies, the surviving spouse becomes the sole trustee. The joint trust becomes irrevocable when the remaining spouse dies, just like it would with an ordinary trust. At that point, an appointed successor trustee oversees the distribution of assets using the plan laid out in the trust documentation.

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3 Advantages of a Joint Revocable Trust

To decide whether a joint trust is right for you, here’s a breakdown of three potential advantages:

Easier to maintain. Perhaps the biggest benefit of a joint trust is the ease of funding and maintaining these accounts. If you’re married and you and your spouse establish separate trusts, then you must each separately transfer assets into your own trust. With a joint trust, ownership is split evenly between each trustee, and you don’t have to worry about transferring anything separately.

Avoids probate. If you have a will but do not put your assets in a trust, the probate process may be required in order to distribute your assets when you die. On the other hand, a properly structured joint trust should allow your beneficiaries to avoid probate, which can be a long and painful process in some cases.

Avoiding probate also means that unlike a will, a joint trust will not become public record. Hence, it might be a good choice if you prefer to keep your finances private.

Less paperwork at tax time. If a trust becomes irrevocable, a separate trust tax return must be filed every year at tax time. That doesn’t happen with a joint trust while one spouse is still living, but it does happen with separate trusts.

3 Disadvantages of a Joint Revocable Trust

Joint revocable trusts are not ideal in all situations. Here care three potential downsides that may affect your decision:

More difficult to leave assets to a non-spouse heir. Joint trusts work best when all of the assets will go to the surviving spouse. If you prefer to leave assets to a non-spouse heir, such as to children from a previous marriage, having a joint trust may complicate things. In this case, establishing separate trusts may be a better option.

Death taxes may be an issue. In the majority of states, death taxes are not a major concern. For 2022, the federal death tax exemption is $12.06 million per individual. However, in a small number of states and in Washington, D.C., lower thresholds apply. If that applies to you, separate trusts may be a better option depending on your net worth.

Less protection from creditors. A joint trust may offer less protection from creditors than separate trusts if one partner carries a significant financial risk. Recall that trusts become irrevocable upon death. This makes it more difficult for creditors to go after that persons’s assets after their death. But if two people share assets, the surviving spouse’s assets could be at risk if creditors come knocking.

Bottom Line

For many couples, a joint revocable trust is a valuable estate planning tool. They can be easier to manage than separate trusts and administration costs may be lower. For married couples whose finances are not overly complicated, a joint revocable trust can be a great choice. However, if your finances are more complex, separate trusts can be a better option in some cases. Be sure to consider your complete financial picture before moving forward with one option or the other.

Estate Planning Tips

• A financial advisor could help you put an estate plan into action. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• There are many ways to plan ahead for taxes and maximize your loved ones’ inheritance. One common strategy includes gifting portions of your estate in advance to heirs.

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