A revocable trust is a very popular estate planning option. If a married couple wants to use that tool in their estate planning, they can choose either a joint trust or separate trusts. A revocable trust protects assets from going through probate, which saves both time and money. It’s also very flexible since you can change what assets you have in the trust and can even end its existence if you want. It’s a great option for passing assets onto heirs. But remember, you have to fund the trust (transfer assets to the trust), otherwise the trust will serve no purpose.
Massachusetts married couples can choose to have a joint trust or separate trusts. It really depends on the couple’s specific situation as to which option would work best for them.
When a Joint Trust Might Be Better
A joint revocable trust (also known as a “living trust”) works well for first marriages when the spouses agree on the beneficiaries, distribution patterns, trustees, and giving the surviving spouse control over the trust. A joint trust gives the surviving spouse more flexibility to use all of the assets of the trust after the death of the first spouse.
A joint revocable trust is also easier to fund and maintain during a couple’s lifetime. All assets simply go into the same place; there’s no need to decide which trust an asset goes into. If the married couple buy a home together and have separate trusts, then the home would need to go into one of the trusts, meaning only one spouse could own the home.
When Separate Trusts Might Be Better
If either spouse was married before, separate trusts could be a good option. Let’s say this is the second marriage for Don and Mary. Don has three adult children and Mary has two. Since they came into the marriage with separate assets and each adult wants to pass on their assets to their current spouse and their own children, separate trusts would allow them to do that.
If a married person wants complete control over how the assets they own will be distributed after their death, separate trusts are a good option. For example, if Don passes away before Mary, his separate trust would become irrevocable. Mary wouldn’t be able to make any changes to it, so Don’s directions would be followed. Mary could still make changes to her revocable trust.
Separate trusts also can be helpful if one spouse brought considerably more assets to the marriage than the other. Let’s say Mary came into the marriage with significantly more assets than Don. By using separate trusts, Mary can make sure her assets get distributed exactly the way she wants among Don and her two children.
If each spouse has their own separate trust, that may protect the assets of one spouse from financial risks brought on by the other spouse. In the case of Don and Mary, if a creditor is coming after Don’s assets, Mary’s separate trust might be protected, depending on the specific situation.
Both Joint Trusts and Separate Trusts Can Help with Massachusetts Estate Taxes
When it comes to saving on estate taxes, separate trusts and a properly drafted joint trust can help. In Massachusetts, if your estate is one dollar over $1 million, your estate will be affected by Massachusetts estate taxes. For a married couple, that means if together you have over $2.2 million, the entire $2.2 million will be taxed. An AB trust is a joint trust that can help a married couple save on estate taxes by splitting assets between two separate trusts when one spouse dies.
When doing your Massachusetts estate planning, it’s important to make the best choices for your specific situation. The best way to do that is to work with a knowledgeable Massachusetts estate planning attorney who can analyze your unique situation and explain whether a joint trust or separate trusts would be ideal to reach your goals. Contact us today for your free, no-obligation consultation.