What is a Revocable Trust?
A revocable living trust is a trust document set up while the creator is living to protect assets and ensure they go to the appropriate heirs. Revocable trusts are created for several reasons, some of the most appealing being that you can avoid some or most probate issues by using them. Doing so can minimize costs, time, and stress for loved ones upon your death.
Revocable trusts can be changed or modified at any time. An irrevocable trust cannot be modified without great difficulty and, therefore, may be a less common choice; however, it also has some perks.
When appropriately utilized, revocable trusts can also help to protect the privacy of the owner and their beneficiaries and help them to avoid some substantial estate taxes when possible.
So should you and your spouse create separate revocable living trusts or a joint one? Both options have pros and cons, and this article will discuss them in more detail below.
Pros of Separate Revocable Living Trusts
If you or your spouse have creditors that may be reaching out following a death, a separate trust may be in order. The reason for this is that upon death, the trust becomes irrevocable, but the spouse can still access funds or assets, depending on the verbiage within the trust.
Separate trusts add an extra layer of protection for the assets within. If there is an active prenuptial agreement in place, this may affect how assets are protected, as well as whether or not state laws can dictate how assets are titled.
For those who own separate property from either previous marriages or family inheritances, a separate trust can also allow for security for each spouse regarding that property.
Similarly to property owned from previous relationships, each party may have children from an earlier marriage and may want to plan for them accordingly, and this can be done effectively with separate trusts.
Depending on the value of each spouse’s estate, you may be able to avoid Massachusetts estate taxes by creating separate trusts. If your combined total estate value surpasses the state’s threshold for estate taxes, the entire portion may be taxed.
When Would a Joint Revocable Living Trust Make Sense?
Suppose both spouses are bringing relatively the same amount of assets into the marriage and don’t have significant issues with creditors to worry about. In that case, a joint revocable living trust may make the most sense for them.
With a joint trust, the surviving spouse obtains complete control of the assets after the first spouse passes away. On the contrary, if separate trusts are used, the surviving spouse may end up with limited access or control over the assets.
It is important to note that creating a joint trust may save time and costs to set up and fund as they are typically more straightforward than setting up separate trusts. You may also save extra steps when it’s tax time each year by not having to have an individual tax return for your spouse’s trust and yours.
Cons of Separate Vs. Joint Trusts
Separate trusts can cost more, as briefly mentioned above, than a joint trust. There are more necessary steps to create and fund, and they will need to be maintained separately, which can generate more fees or expenses throughout the life of the trust.
Assets included in separate trusts may need to be retitled so they are effectively protected within the trust. It is essential to speak with an experienced attorney to discuss how titles of assets will affect your trust options.
With joint trusts, the surviving spouse may be able to change information regarding who is entitled to what after the first spouse dies. This issue may create problems, especially in blended families, or when beneficiaries or heirs are not given what was promised.
If there is a judgment or creditor issue against one of the spouses with a joint trust, it can mean that all of the assets within that trust can be affected.
Plan Ahead For Optimal Results
It is important to sit down with your spouse to determine what creditor issues may be present as you plan to create a trust. Next, discuss your current assets, how they are titled, and whether or not both parties have assets from previous relationships or inheritances that require extra protection.
Finally, it is important to determine the total value of the assets to determine whether or not the state estate tax threshold will come into play so you can avoid that when necessary.
Your Advocate, Your Lawyer
Working with an experienced lawyer ensures your assets and future will be protected at all costs. Schedule some time to meet and discuss the above items to determine which revocable living trust is best for your family.
Other options may fit your needs better than revocable living trusts, which you can discuss while building an all-encompassing estate plan for you and your spouse. There may be products that will serve your family’s needs from all angles that you have not yet heard of or discussed. Experienced professionals are trained to know what is available and how to utilize services that will best support your needs.
Call our office today at (781) 606-9002 to get started. With several years of experience in helping to tailor estate plans to each family’s needs, we are confident we can develop a solution to meet and exceed your specific goals.
We look forward to working with you.