A joint trust is a single trust that’s created and funded with assets from two spouses.
Joint trusts allow spouses to handle both of their assets in the same way
Couples in community property states may benefit from a joint trust instead of separate trusts for each spouse
You may not want a joint trust if you have a blended family or if your estate could be subject to federal or state estate tax
Consider pairing a joint trust with mirror wills to avoid any contradictions between your wills and trust
A joint trust is a trust created by two people who both act as co-trustees. A couple may use a joint trust if they want their money and belongings managed in the same way after they die, but a joint trust can be especially useful for a married couple that lives in a community property state.
In community property states, both spouses own an equal share of the property and other assets acquired during the marriage — potentially including bank accounts, retirement accounts, investments, and life insurance policies. Because it can be complicated for one spouse to create an individual trust and move jointly owned assets into it, a joint trust may be the best option.
Joint trusts aren’t ideal for everyone, though. You may not want to use one if you and your spouse have different beneficiaries or want to distribute your assets differently. Joint trusts offer less flexibility than separate trusts. Another potential disadvantage of a joint trust is the lack of creditor protection.
Along with a joint trust, it can be useful for spouses to create mirror wills. With mirror wills, each spouse creates their own will, but both wills lay out the same (or very similar) instructions for how their assets are handled after death. A mirror will can help avoid creating wills that conflict with each other or with the trust’s instructions.
With a joint trust, one trust is created and each spouse serves as a co-trustee. When one spouse dies, the living spouse becomes the sole trustee and manages the trust. After the second spouse dies, the assets in the trust will pass to the final beneficiaries, according to the instructions in the trust document.
Ownership of assets in the trust is split between the spouses. Regardless of which spouse dies first, you should expect that the assets in the trust will be treated the same way. It’s difficult to create a joint trust where the beneficiaries receive certain assets if one spouse dies first, but different assets if the other spouse dies first.
Unsure whether a will is enough for you or if you should also create a trust? Try our guide to wills vs trusts.
You can generally create a joint trust the same way you would create any other trust. You may be able to create a simple trust online, but it may be safer to either work with an estate attorney or use a digital service that has been vetted by attorneys (like the Policygenius app).
While a standard joint living trust may be enough for many people, some situations would benefit from a more nuanced trust.There are multiple types of trusts, and what’s best for you depends on your situation. For example, a wealthy couple that’s trying to minimize their federal estate taxes may want to consider a credit shelter trust, especially if they have step children. Consider talking with an estate attorney about what trust arrangement could benefit you most.
_Learn more about the different types of trusts.
In general, you should only consider a joint trust if you are comfortable splitting ownership of all the assets in the trust with your spouse; your spouse also has equal control over the trust while you’re both alive. Make sure you’re also comfortable with the fact that your spouse will own the trust outright if you die. It's also advisebale that you be confident your marriage will continue. Going through a divorce with assets in a joint trust can be logistically challenging.
The two main advantages of a joint trust are that general administration is usually easier and maintenance costs are generally lower if you have a single trust versus if you have two trusts. Couples who live in community property states and want a trust may especially want to consider a joint trust, because separating ownership of jointly owned assets could be very challenging.
One of the biggest reasons you may not want to create a joint trust is that a joint trust generally offers lower flexibility than separate trusts. For example, if one spouse wants to change their beneficiaries or just adjust what each beneficiary receives, they need the other spouse to agree and then each person’s will may also need to be updated.
Here are four other reasons you may not want to create a joint trust:
If any of these situations applies to you, consider talking with a lawyer to help draft your estate plan. Learn how to find an estate planning attorney.
However you create your joint trust, you should also consider your wills to make sure that none of the instructions in your wills contradict the trust’s instructions. Any discrepancy could make it difficult for your beneficiaries to receive whatever funds or assets you wanted them to have. In particular, you may want to consider mirrored wills, also called reciprocal wills.
With mirrored wills, each spouse has a will that names the other as their primary beneficiary. Then the wills name contingent beneficiaries (secondary beneficiaries) who will get the estate’s assets after the second spouse dies. Spouses with well made mirror wills don’t have to worry about their wills contradicting each other because the wills are designed to work in conjunction with each other. (It’s still important to ensure the instructions in your will don’t contradict your trust document.)
Related article: How much does a will cost?
You may want to consider mirror wills instead of a joint will — a single will that covers both spouses — because a joint will does not offer as much flexibility. With a joint will, if one spouse dies, the living spouse can no longer change any of the will’s terms. While this could help avoid the living spouse from going against the wishes of the deceased spouse, it also limits how the surviving spouse can manage their money and assets. For example, a living spouse may want to change guardianship for a dependent if the original choice for a guardian dies. At the same time, not all states recognize joint wills.
If you create a joint trust through the Policygenius app, you can get your mirror wills at the same time, ensuring that all your estate planning documents work together.
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About the author
Derek is a tax expert at Policygenius in New York City. He has written about multiple personal finance topics in the past, and his work has been covered by Yahoo Finance, MSN, Business Insider and CNBC.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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