Joint Vs. Separate Revocable Trusts: Why Married Couples May Want To Choose Separate Revocable Trusts
By: Joe D. Lieberman, J.D., LL.M., Law Clerk, Morris Law Group - December 06, 2019
- Separate Assets: Married individuals who own individual property prior to the marriage or who expect to receive an inheritance and would like to keep their assets separate and not commingled might be better served with separate Revocable Trusts.
- Control: While a joint trust may be easier to manage during the married couple’s lifetime, separate trusts also provide each spouse with control of such spouse’s separate trust, but have the option of naming the other as Co-Trustee. Additionally, separate trusts provide more flexibility upon the first spouse’s death because the property is already divided when the trust is funded.
- Separate Dispositions: Married individuals may have different plans regarding the disposition of their estate.
- Different Beneficiaries/Fiduciaries: Married individuals may have different beneficiaries or want different fiduciaries (e.g., Trustees, Distribution Trustees, Trust Protector) to serve.
- Tax Implications: If a married couple anticipates having a taxable estate, separate trusts provide more efficient tax planning via credit shelter/marital planning for married couples whose estates total higher than the federal estate tax exemption (combined $22,800,000 for 2019).
- Additional Tax Implications: Any assets owned in a married person’s individual trust will receive a step-up in basis upon the death of the first spouse. If the asset is owned in a joint trust, the surviving spouse will receive a step-up in basis as to half of the asset. Separate trusts would better facilitate last-minute income tax planning.
- Asset Protection: Married couples can have each spouse’s trust own 50% (or more or less) of a Limited Liability Company that holds a business or investments, creating a multi-member Limited Liability Company. In many states, including Florida, the only remedy for a creditor to levy on (i.e., attach) a member’s interest is to resort to a cumbersome, expensive and time-consuming proceeding called a "proceeding supplementary to execution." This involves a "mini-trial" to establish that creditor's right to a "charging lien" on the member’s interest. With a charging order, the creditor cannot directly attach the assets of the Limited Liability Company, but instead would receive any payments made from that member’s distributional interest (which, in most cases, would be zero when there is litigation pending).
At Morris Law Group, we can handle the process of preparing and/or maintaining your Revocable Trust. Our expert attorneys and paralegals have the years of experience and depth of knowledge needed to assist you in creating or maintaining a joint or separate Revocable Trust.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.