JOINT REVOCABLE LIVING TRUSTS –
AN ESTATE PLANNING TOOL FOR
MARRIED AND UNMARRIED COUPLES
The joint revocable living trust (“JRT”) is a special type of revocable living trust that is created by two people (“grantors”). They may be you and your spouse, significant other, a brother or sister or any two people who may have an interest in pooling their assets for estate planning purposes. (For purposes of this article, I will often refer to the grantors as a “couple” and often assume that the couple is married. However, JRT’s work equally well for unmarried persons.)
Lifetime Management. You and your spouse may also be the initial trustees during your lifetimes. If either of you becomes unable or unwilling to serve as a trustee, the other can be the sole trustee. You may provide that you must act jointly in all decisions or give each other the right to act alone. When both of you are unable to serve, a successor trustee steps in to manage the trust.
Access to principal and income. As long as you are both alive, both of you would be entitled to the income and the use of the principal. You could choose how the trust would be managed when one of you dies. Here are some examples of your options:
Make the trust completely revocable after the death of one spouse. This allows the survivor full access to all income and principal. The survivor may choose to terminate for any reason.
Give the survivor complete control over half of the trust and make the other half irrevocable to insure that it will be ultimately distributed to your children (or other heirs that you have jointly agreed upon).
Make the entire trust irrevocable with all income and limited principal available to the survivor. This may be of particular interest in a second marriage. It is not a prenuptial agreement or a postnuptial agreement, but it may serve that purpose.
After death of both Grantors. When you have both passed away, the trust is managed and then distributed to your named beneficiaries in the same manner as with separate trusts.
Reasons for choosing a JRT over separate trusts:
- A single joint revocable trust may mean a better, more comprehensive legal document. Traditional estate planning with trusts means one trust for each spouse. Each document must be prepared, reviewed, and executed. With a JRT, you create only one trust document. These are lengthy legal documents, and it may be more economical for your attorney to provide you with a more comprehensive legal document if you choose a JRT over separate trusts.
- No need to split assets. For most couples, the least attractive aspect of estate planning with trusts is separating joint assets to fund the separate trusts. I have had more than one case where the clients have created separate revocable trusts and then failed to fund the trusts, solely because they were uncomfortable with separating their assets. (To them, it seemed like a “divorce”.) On the other hand, with a JRT , there is no need to separate assets before contributing them to the trust. You may even choose to provide that upon dissolution of the trust, the assets will be distributed back to the couple jointly.
- Reduce lifetime administrative expense and inconvenience. Usually a trust will have its own checking account, savings account and brokerage account. This means additional bank reconciliations and brokerage account reconciliations. It may also mean additional fees in connection with the maintenance of such accounts. The JRT requires only one set of accounts.
JRT’s have been around for many years. You can easily see why they are very attractive to couples who wish to do joint estate planning. However, for tax reasons, most estate planning attorneys avoided using them where estate tax planning (for married couples) was required. This has changed for a few reasons:
- Changes in the estate tax laws make it less likely that your estate will be subject to estate tax. Therefore, uncertainties in the estate tax treatment of joint trusts are of less concern.
- (For married couples only) Even if your estate is subject to estate tax, recent IRS Private Letter Rulings indicate that we can draft JRT’s to more easily avoid estate tax results than with separate trusts. With separate trusts, you have to decide how much property to allocate to each spouse, and you may have to guess who will die first. With a JRT, this is unnecessary.
- IRS Private Letter Rulings indicate that you may be able to obtain income tax benefits for the surviving grantor that were previously unobtainable with separate trusts or outright ownership of joint property.
For most couples, the JRT is an excellent way to obtain the benefits of estate planning with trusts without some of the downsides.
For additional information or to schedule an appointment, call Boynton Beach Florida Elder Law & Estate Planning Attorney Martin H. Cohen at 561-880-8223.