Knowing the differences between a joint living trust and separate living trusts is critical in forming an estate plan that benefits your family long-term. While similar, the choice between the two can be the difference between total asset protection and flexible inheritance options.
As Florida estate planning attorneys we regularly get asked about Joint vs. separate living trusts, so we’ve created this blog to help you understand the differences easily:
Joints vs. Separate Living Trusts: The Key Differences
What Are Living Trusts?
A living trust is a type of legal entity established by a trust maker, in which assets can be placed into. The assets are managed for the benefit of the selected beneficiaries.
Living trusts allow the creator to amend the trust’s contents and conditions while they’re still alive. Living trusts can also allow the assets to bypass probate.
- They begin during the lifetime of the trust creator.
- They can be amended during the trust creator’s lifetime.
- Assets can be managed by an appointed trustee after the creator’s death.
- Assets are passed to beneficiaries per the terms of the trust.
- The trust can bypass probate.
Read Related: How to Set Up a Living Trust in Florida
What Is a Joint Living Trust?
Joint living trusts involve the testamentary wishes of both married spouses, in one document. This will typically cover each spouse’s individually owned assets as well as jointly owned assets.
Explain It To Me Like I’m Five:
Let’s make it simple to understand:
- Imagine a trust is a room. The room (trust) stores several bags of items (assets).
- Each spouse has a bag within the room, containing items they own individually.
- There is a third bag that holds jointly owned items.
- When the first spouse dies, each bag will be administered differently.
- After the second spouse dies, the joint trust will be administered in its entirety via the agreed testamentary plan.
What Is a Separate Living Trust?
Separate living trusts are trusts that are held by each spouse separately. They contain only the assets the spouses own individually and their portion of any jointly owned assets.
Each married separate living trust maker has no interest or involvement with their spouse’s separate living trust.
When one spouse passes away, or they both pass away, the two trusts and their assets do not interact with each other during administration.
When to Use a Joint Living Trust?
Joint trusts are useful for married couples who have children. These marriages are usually long-standing, with family assets obtained during the marriage. The spouses will have a shared vision of what should happen to their assets and usually intend to leave them to their children.
If the trust is drafted to maintain tenants by entirety protection for joint property, then asset protection is maintained for each spouse.
Did You Know? 60% of people without a will also haven’t made a living trust or any other estate planning document.
When to Use a Separate Living Trust?
- Separate living trusts are useful for blended families (families with children from previous partners) and where each spouse has obtained their assets before getting married.
- In these cases, each spouse usually wants to ensure their own children inherit their assets after they pass away.
- A separate trust can ensure their assets remain unaffected by the other spouse; as using a joint trust can leave uncertainty over whether the surviving spouse will provide for the surviving child.
- If one spouse is involved in a high-risk profession or business, then separate trusts can protect the other spouse from potential legal risk.
- The couple can share the assets between each other’s separate trusts so that in the event of legal issues, the family’s key assets (such as homestead, annuities and retirement accounts) remain protected.
When One Spouse Has a Large Inheritance
- If one spouse expects to inherit a very large inheritance, then a separate trust may also be suitable.
- The inheriting spouse can use the trust to separate this inheritance from their partner, to maintain control of it.
Disproportionate Wealth Situations
- Separate trusts can also be suitable for spouses with very different testamentary plans.
- For example, a wealthy spouse can design a plan that provides for their surviving spouse but also provides for select friends, relatives, and charities.
- The surviving spouse would use a separate living trust as they wouldn’t need to leave money for the wealthy spouse, but would rather share it with loved ones more in need.
Areas to Consider When Choosing a Type of Living Trust:
These areas are also key to any estate plan, and the pros and cons and options of each type of living trust should be analyzed:
Trusts can sometimes allow you to protect assets from creditors and claimants.
- Joint Living Trusts: Marital assets are held together, meaning there is less asset protection if one spouse faces a judgment.
- Separate Living Trusts: Assets are better protected from judgments, as the trusts are separate from one another.
Read Related: Should Yout Put Your House in a Trust in Florida?
Florida does not have estate taxes, but very large estates may still face Federal estate taxes ($12.92 million). Always contact an estate planning attorney or tax planning attorney before making any tax-related decisions.
- Joint Living Trust: Assets and property can earn the same estate marital deduction as a separate trust.
- Separate Living Trust: Large estates may benefit from tax relief.
During The Couples’ Lifetime
Consider how important the simplicity of living trust management is to you and your partner.
- Joint Trusts: As all the assets are in one trust together, asset management can often be simpler. Each spouse has equal control of asset management.
- Separate Trust: Separate trust management and creation can be complicated. Assets may need to be titled separately first before they can be sent into trusts. As there are two trusts, it can also be tricky to align each other’s views and goals over the couple’s lifetime.
When one spouse passes away, there are also differences in how each type of living trust is handled. You may have a preference for this and how simple you’d like it to be for your surviving loved ones.
- Joint Trust: If both spouses agree on how assets should be distributed, then joint trust makes life easy as everything is dealt with together. Alternatively, joint living trusts can be separated into two trusts post-death to divide up the assets.
- Separate Trust: As there are already two separate trusts, you gain greater control over post-death distribution. The surviving spouse can amend or revoke the deceased spouse’s trust or if designed to be irrevocable, it can become so to protect the assets from going to undesired people.
Other Trust Options for Married Couples
There are many revocable living trusts and other types of trusts available for married couples in Florida. Before deciding if you want a separate living trust or joint living trust, consider the following options too:
- QTIP Trusts
- Marital Deduction Trusts
- Credit Shelter Trusts
- Marital Lifetime Revocable Trusts
- Marital Disclaimer Trusts
Hire an Estate Planning Attorney for Trusts in Riverview and St. Petersburg, FL
If you want to create a living trust in Florida or need expert advice, then our Florida estate planning attorneys can help.
We regularly help families and couples choose and establish trusts that are optimal for their circumstances and vision. From drafting the document, to helping you manage the trust we can help make the process smooth.
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a will or trust.