Not sure what a joint trust is? Want to know how a joint trust can save you and your spouse a ton of cash and pass on your assets without a huge tax penalty? Here are some facts about this important financial option–and whether it can help you and your family.
What is a Joint Trust?
In a nutshell, a joint trust, also commonly known as a ‘living trust’ is a contract or trust document which is generally drawn up by a married couple in order to enable them to manage their assets and benefit their families, while they are alive and more so after the death of one or the other.
Such a trust can be established by any couple. In most cases, it generally proves to be more beneficial for married couples to enter such agreements. (Laws in different states of the USA differ with respect to the eligibility requirements for such setups.) It is therefore prudent and in most cases essential to consult a lawyer for the actual drawing up of the document according to the laws in your particular state.
What You Must Do
Certain requirements are required for these kinds of trusts.
Firstly, both individuals setting up the trust must do so of their own volition. Secondly, the contract must have nominated beneficiaries who are to benefit from the establishment of the trust. Thirdly, property must be transferred to the trust. Lastly, the property which is transferred to the trust must be owned either individually or mutually by the creators of the trust, who are also known as grantors.
How a Joint Trust Works
A trustee manages the couple’s assets and the grantors usually select an individual or an institution as trustees. The grantors usually name themselves as the beneficiaries of the joint trust and sometimes also nominate their children. They also elect themselves often as co-trustees or ‘successor trustees’.
Usually a joint trust has a clause which makes it revocable in the event of the spouse’s death. Such a trust is known as a Joint Revocable Living Trust.
Pros and Cons of a Joint Trust
Advantages: A joint trust ensures more privacy than a will. Having such a trust also ensures ease of management, with respect to having to manage separate assets in individual trusts. When a beneficiary of a joint trust expires, there is hardly any cost incurred in legal hassles and transfer of property.
In comparison, probate not only takes longer (three to six months or more), but the legal expenses also mount up to nearly 10 percent of the person’s assets.
Disadvantages: Tax expense is one of the biggest burdens of a joint trust, since it causes the property to be viewed as a single whole and thereby subject to greater tax rates. Another potential disadvantage is that, in the case of a divorce, separating the property becomes a huge ordeal financially and legally.
Unlike other trusts, a trust of this kind is so complicated it’s imporant to consult an attorney before embarking on this form of financial protection.
