Determining whether a married couple should establish joint or individual trusts depends on multiple factors; there is simply no one-size-fits-all approach. Although joint trusts are frequently less expensive to set up and may provide better ease of management in certain situations, individual trusts often have far superior advantages.
To determine whether a joint or individual trust is better for your unique situation, it’s important to first understand the differences between the two.
A joint trust, also known as a joint living trust, is a living trust with another person, typically a spouse. Instead of creating two separate trusts, a joint trust provides the simplicity of reduced costs, ease of management, and one document. That being said, a joint trust can be less flexible than an individual trust, while both spouses are alive and upon the death of a spouse.
An individual trust is similar to a joint trust, except that it is for the benefit of one individual, not two. Individual trusts, also known as personal trusts, can be used to buy, sell, and hold property for the trustor. They are frequently used to fund higher education or manage estate taxes, and they can be revocable or irrevocable. An experienced NYC estate planning attorney can help you determine which type of trust is best for you.
Advantages and Disadvantages of Joint and Individual Trusts
Let’s take a look at several reasons for using trusts and determine which type of trust is more effective in each situation.
Separate, individual trusts may provide some insulation to one spouse from financial problems incurred by the other spouse. If, on the other hand, all assets are placed in one, joint trust, both spouse’s assets would be at risk if a judgment is obtained over one spouse. With regard to protecting assets from creditors, having individual trusts is nearly always the better option.
Trust Management and Administration
Individual trusts inherently require more work because there are two separate trusts that both need managing. However, it is possible for a married couple to be co-trustees on each other’s individual trust, effectively allowing the marital estate to remain as one, singular unit even though assets are held in separate trusts. Even so, this still requires slightly more work than a standard joint trust.
Individual trusts are easier after the death of the first spouse, however. This is mainly because the property within the trusts has already been divided. In addition, the surviving spouse’s trust remains amendable and revocable upon the death of a spouse. On the flip side, the death of the first spouse can cause serious complications in the case of a joint trust that was poorly drafted. As joint trusts become irrevocable upon a spouse’s death, an improperly worded trust could accidentally initiate an immediate gift to the trust’s beneficiaries, for example.
If properly drafted, joint and individual trusts can provide similar estate tax benefits. While individual trusts give estate tax relief to affluent couples with estates larger than the federal tax exemption, joint trusts hold “community property,” which is divided in half, with each half belonging to a spouse. As such, both trusts can work equally well when it comes to estate taxes.
Contact Lissner & Lissner LLP Today
The skilled legal team at Lissner & Lissner LLP has helped countless clients manage wealth and protect their estates. Whether you need a simple will or advanced health care directive, or a more complex trust, our highly-skilled attorneys will ensure that your unique goals are met. Contact Lissner & Lissner LLP Today at (212) 307-1499 for a confidential consultation about your case.