Choosing the Right Trust: Joint vs. Separate for Married Couples

There are many benefits of including a revocable trust in an estate plan. This trust type allows for the minimization of probate expenses, keeping financial affairs private and providing for the management of assets in the event a person should become incapacitated. Importantly, they offer flexibility whereby the trust terms can be amended or even revoked altogether at any time.

For married couples, especially those who are newlyweds, discussing financial affairs is a crucial step in building a strong foundation for their future together. One of the key decisions they need to make is whether to establish a joint trust or separate trusts. This decision is not only about managing their current assets but also about planning for their long-term financial security and legacy. The right choice depends on their financial and family circumstances, applicable state law, and other factors.

Benefits of a Joint Trust—Simplicity and Equality

A joint trust establishes a structure in which either spouse would inherit the combined marital assets in the event of the other spouse’s passing. If appropriate for the couple, this type of trust can be less complex to set up and administer than separate trusts. Funding the trust is a simple matter of transferring assets into it and avoids the need to divide assets between two separate trusts.

In addition, this arrangement enables each spouse to have equal control over the trust’s assets during their lifetime, which can make it easier to manage and conduct transactions involving the assets. On the other hand, separate trusts may be optimal for those who have assets that are not appropriate or of interest to their spouse to inherit (such as business interests), or those who aren’t comfortable sharing control of their combined assets during their lifetime.

Benefits of Separate Trusts—Greater Asset Protection

If shielding assets from creditors is a concern, separate trusts usually offer greater protection. With a joint trust, if a creditor obtains a judgment against one spouse, all trust assets may be at risk. A spouse’s trust is generally protected from the other spouse’s creditors.

Also, when one spouse dies, his or her trust becomes irrevocable, making it more difficult for creditors of either spouse to reach the trust assets. Keep in mind that the degree of asset protection a trust provides depends on the type of debt involved, applicable state law and the existence of a prenuptial agreement.

Don’t Forget to Factor in Taxes

For many couples, federal gift and estate taxes aren’t a primary concern at present due to the combined gift and estate tax exemption of $27,980,000 in 2025.

However, if a couple’s wealth exceeds the exemption amount, or if they live in a state where an estate or inheritance tax kicks in at lower asset levels, separate trusts offer greater opportunities to avoid or minimize these taxes. For example, some states have exemption amounts as low as $1 million or $2 million. In these states, separate trusts can be used to make the most of each spouse’s exemption amount and minimize exposure to death taxes.

It’s also important to consider income tax. When a spouse dies, his or her trust will become irrevocable and tax filing requirements will also change. This entails tax filing responsibilities for the trust each year and, to the extent income is accumulated in the trust, paying trust taxes at potentially significantly higher rates.

A joint trust remains revocable after the first spouse’s death (it doesn’t become irrevocable until both spouses have passed). In this case, income is taxed to the surviving spouse at his or her individual tax rate.

Understanding the Pros and Cons

Joint and separate trusts each have advantages and disadvantages, making it essential to review the pros and cons of both options to ensure alignment with the couple’s personal and financial objectives.

For more information or to discuss and devise a planning strategy that is right for you, contact Elizabeth Morin, a Director in Anchin’s Private Client and Matrimonial Advisory Groups, or your Anchin Relationship Partner.