Should Married Couples Use a Joint Trust or Separate Trusts?

Including a revocable trust in your estate plan can be one of the smartest moves you make. A revocable trust allows you to minimize probate expenses, keep your financial affairs private, and ensure your assets are managed if you become incapacitated. Plus, they’re flexible—you can amend the trust terms or even revoke it entirely at any time.

If you’re married, one key decision is whether to use a joint trust or separate trusts. The best choice depends on your unique financial situation, family dynamics, applicable state laws, and long-term goals. Let’s explore the pros and cons of each option.

The Simplicity of a Joint Trust

A joint trust combines your assets into a single entity, making it simpler to manage during your lifetimes. If you’re comfortable with your spouse inheriting your combined assets, a joint trust is straightforward to establish and administer. Here’s why:

• Streamlined Setup: Funding the trust only involves transferring assets into it—no need to divide assets between two trusts.
• Shared Control: You and your spouse retain equal control over the assets, which can make financial management and transactions easier.

However, a joint trust isn’t ideal for every couple. For example, if you prefer more independence in managing your assets or have concerns about combining them, separate trusts might be the better option.

Separate Trusts: Greater Asset Protection and Flexibility

Separate trusts, on the other hand, offer greater asset protection and flexibility in some situations. Here’s how they stand out:

• Protection from Creditors: If a creditor obtains a judgment against one spouse, a joint trust may expose all assets to risk. With separate trusts, the assets in one spouse’s trust are typically protected from the other spouse’s creditors.
• Security After Death: When one spouse passes away, their trust becomes irrevocable. This makes it harder for creditors or others to access those assets.

Keep in mind that the degree of asset protection depends on state law, the type of debt involved, and whether you have a prenuptial agreement in place.

Tax Considerations: Exemptions and Income Tax Implications

Federal gift and estate taxes may not affect most couples, thanks to a combined gift and estate tax exemption exceeding $27 million for 2024 and 2025. However, if your combined wealth exceeds this threshold—or if you live in a state with a lower estate or inheritance tax exemption—separate trusts can help minimize tax exposure.

For example, in states with exemptions as low as $1 million or $2 million, separate trusts allow each spouse to maximize their exemption and reduce estate taxes.

You should also factor in income tax implications:

• With a joint trust, the trust remains revocable after one spouse’s death. This means the surviving spouse continues to pay income tax at individual rates, which are typically lower than trust tax rates.
• With separate trusts, when one spouse’s trust becomes irrevocable, it requires its own tax return, and any accumulated income is taxed at higher trust tax rates.

Choosing the Right Option for You

Both joint and separate trusts have distinct benefits and drawbacks, and the right choice depends on your circumstances. The key is finding the one that aligns with your goals, protects your assets, and simplifies your estate planning. If you’re unsure which path to take, we’re here to help. Contact us to review your situation and create a plan tailored to your needs.

HoganTaylor Estate Planning Services

HoganTaylor estate planning professionals leverage their tax and business advisory expertise to help individuals accomplish goals and minimize tax burden. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Estate Planning services, please contact Dan Bomhoff, Estate Planning  Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.