Should spouses have separate trusts or a joint trust?

A “trust” is an arrangement in which a third party called a “trustee” holds assets on behalf of someone else, known as a “beneficiary.” Depending on the terms, the trustee generally manages the assets and distributes income generated by the trust. Trusts can be a useful estate-planning tool because they enable your heirs to benefit from certain assets without the tax implications they might encounter by inheriting the property outright through a will.

Many married couples place their assets in trust for this reason, and because it saves time and court fees associated with the probate process. But what is the best way to do this?

One option is for a couple to place marital assets together in a “joint revocable living trust” or “joint trust” that transfers their assets to themselves as co-trustees. While they’re alive and competent, each spouse has full control over the assets. When one spouse dies, the surviving spouse continues as trustee with full control. Upon the surviving spouse’s passing, a designated successor trustee will use the remaining assets to settle any debts and distribute what’s left as directed by the trust document. This is all done without any involvement by the court.

Other couples opt to separate their marital estate into two separate trusts, protecting the assets of one spouse from the other spouse’s creditors. Of course the mechanics of this depend on how the assets are titled. Each spouse is required to manage their own trust, but they can name the other spouse as co-trustee so they both can control all assets.

What are the pros and cons of each? Separate trusts may be a good option for couples who own separate property that they brought into the marriage, either from inheritances or previous marriages, but they can be more expensive and more complicated to administer.
Joint trusts, on the other hand, allow for more flexibility. For example, even if spouses have their own separate property, they can still transfer it into a joint trust with separate named beneficiaries. If the trust is ever revoked, the property reverts back to how it was before the trust was created.

Joint trusts are also simpler to administer after both spouses have passed. On the other hand, they offer less asset protection if a court judgment is entered against one spouse. This is just a broad overview. If you and your spouse are getting older and looking for the best way to manage your assets, it would be a good idea to speak with an estate-planning attorney with elder law expertise.