By: Joe D. Lieberman, J.D., LL.M., Law Clerk, Morris Law Group
As we discuss on our website, a Revocable Trust is a fundamental component of an estate plan. It is created by an individual (also known as the Grantor) during his or her lifetime, and can be revoked or amended by the Grantor at any time he or she is living and not incapacitated. All assets owned by a Revocable Trust are managed by the Trustee, which in most cases is also the Grantor. Upon the Grantor’s death, the designated Successor Trustee will step into the role and administer the distribution of the Grantor’s assets.
Deciding between joint and separate Revocable Trusts for married couples is an important aspect of estate planning. The following are some reasons why married couples may want to choose separate as opposed to joint Revocable Trusts:
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.