A joint trust is a living trust created by a married couple with provisions for both spouses and beneficiaries. It can reduce estate taxes, provide a federal tax shelter, and simplify management in case of illness. However, it may not be suitable for all couples and can be difficult to separate in case of divorce. Consultation with a solicitor is recommended.
A trust is a legal arrangement in which a trustee transfers assets to a trustee. A joint trust is a living trust created by a married couple who designate both spouses as guarantors of the trust. There are several advantages and disadvantages to entering into a joint trust, so each couple will need to decide if this type of arrangement is right for their needs.
A joint trust generally contains provisions that benefit both spouses while they are alive, as well as the surviving spouse in the event of their death. Provisions may also be made for descendants or beneficiaries that the couple requests to receive assets in the event of death. Joint trusts typically serve as the primary estate planning document and are used in place of standard wills.
Property is generally not held separate in a joint trust for tax deduction purposes. Most joint trusts are designed to reduce estate taxes for the surviving spouse. This can also provide a federal tax shelter from death taxes.
A joint trust can be beneficial in the event that one of the trustees falls ill or becomes incompetent. In this case, a pre-selected successor trustee can take over the management of the trust assets. This can reduce some of the complications encountered when relying on a power of attorney.
Typically, it is up to the couple to decide under what circumstances they will no longer be able to go about their business. Most joint trusts require an official letter from two doctors stating that one or both parties are incapacitated before passing power to a successor trustee. Some couples may rely on family members to act as probate trustees, while in other cases it may be more appropriate to designate a business partner or collaborator. It is not uncommon for a business partner to act as a successor if there is a business or enterprise that remains fully operational.
A joint trust is generally desirable when one person is responsible for generating income to support the couple. Individual trusts are more beneficial for helping both parties develop financial experience and credit history. In some cases it may be easier for beneficiaries to access individual funds than joint trust funds.
Joint trusts can also be significantly more difficult to separate in the event of divorce. Even with a prenuptial agreement, the separation of property and other assets can lead to taxes and property losses. It is also possible for both parties to become liable for the claims of only one spouse. Careful consultation with a trusted solicitor can help eliminate risk and provide the most suitable trusts for all parties involved.
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