Which is better for married couples? One joint trust or two separate trusts?
dan • March 5, 2022
After married clients decide to form a trust, they must choose whether to have one joint trust or two individual trusts. While many married clients they will create one trust together, there are good reasons to have separate individual trusts. Some things to consider:
Advantages of two separate trusts
- Separate Property : Couples who own large amounts of separate property may want to consider an individual trust. This often applies to couples who have prior marriages and are getting together later in life, or individuals who have a large portion of their assets in separately held LLCs or real estate, or in IRAs, Annuities, Life Insurance Policies, or 401Ks.
- Sole Control : Property that passed to someone from an inheritance or through a family trust – for instance, a vacation home that has been on one side of the family for generations – is more easily managed through individual trusts.
- Prenuptial Agreements : If the spouses have signed a prenuptial agreement keeping each spouse’s earnings and property separate, then two individual trusts may work better.
- Unmarried Couples : If the two members of the couple are filing separate income taxes, they will have a much easier time with individual trusts. Also, since such relationships do not qualify for the unlimited marital deduction, an individual trust can protect gifts from being taxable.
- Administration After the First Death : In all likelihood, you and your spouse are not going to die together. Many people erroneously assume that there will be little reason for the surviving spouse to change the plan after the first death. Placing the deceased spouse's assets in a separate trust can, however, provide tax and asset protection benefits, both for the surviving spouse and the deceased spouse's kids. This can be done even in a joint trust, but requires more work than if the assets are already split into two separate trusts.
Advantages of One joint trust
- Flexibility : Even if the two spouses have some separate property, they can transfer it all to the trust, and still name separate beneficiaries for specific items held by the trust. In addition, either spouse may revoke the joint trust at any time. Once the trust is revoked, the ownership status of the property reverts to the way it was before the trust was created.
- Funding : Even one sizable piece of shared property can make individual trusts a real hassle. Some financial institutions will not allow an asset to be titled to two trusts, and the asset must be divided. Other institutions require the asset to be held as tenants in common, which changes the asset from a joint asset that transfers automatically to the survivor into a commonly held asset that must be retitled after the first death. None of this is a problem with a Joint Trust.
- Tax Benefits in Community Property States : In most states, property acquired during the marriage can be kept separately. But there are 14 "community property" states in which property acquired during marriage is presumed to be the property of both spouses, regardless of how the property is titled. In those community property states, the capital gains basis of that community property "steps up" at the death of the first spouse. It then steps up again at the death of the second spouse. This is known as the "double step up" and can save a substantial amount of money on taxes. Many couples in community property states use joint trusts to ensure that the community nature of the marital property is maintained and the "double step up" is preserved.
- Administration : In a joint trust, shared property can remain in the living trust when the first spouse dies. If the couple chooses not to have the trust broken apart at the first death, administration is very easy for the surviving spouse (this ease can come at the expense of lost asset protection and tax benefits).
In our experience, forming two Individual Trusts adds some complexity and hassle to the initial trust funding process. However, it is often more difficult to administer a joint trust after one spouse has passed away. It’s also possible for a married couple to create both a joint trust for the communally owned property and separate trusts for separate property. That might cost more up front to create, but for some couples, it may be easier in the long run.
What Next?
What Next?
If you think it might be time to think through your estate plan, you can:
If you think it might be time to think through your estate plan, you can:
- Give us a call at 720-821-7604 to schedule a "Discovery Session" at which we can determine whether our firm would be a good fit for your needs. Or fill out our contact form to have us call you.
- Visit our estate planning page to learn more about how proactively thinking through your estate plan can protect you and your family, minimize hassle, lower the chance of family discord, and minimize or eliminate taxes.
- Get a copy of our estate planning checklist to see where you currently stand.
- Learn more by reading our blog or watching our videos.
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Dealing with the death of a loved one is never easy, and navigating the legal process that follows can add stress during an already difficult time. In Colorado, probate is the legal process by which a deceased person’s estate is administered, their debts are paid, and their assets are distributed to beneficiaries. Whether you’re an executor, beneficiary, or family member, understanding how probate works in Colorado can help you anticipate the steps involved and your potential responsibilities. This blog post will provide an overview of the probate process in Colorado, outline when probate is necessary, and offer guidance on how to navigate the system effectively.  What is Probate? Probate is the legal process that occurs after someone dies to ensure their assets are distributed according to their will or, if there is no will, according to state law. The probate process includes validating the will, inventorying the deceased’s assets, paying off debts and taxes, and distributing the remaining assets to the rightful heirs. While probate is often associated with lengthy court proceedings, not all estates require formal probate. Colorado offers several options depending on the size and complexity of the estate, which can help simplify the process in many cases. When is Probate Necessary in Colorado? Probate is not always required in Colorado. Whether an estate must go through probate depends on the types and value of the deceased’s assets. Generally, probate is necessary if: The deceased owned real estate solely in their name. The deceased’s assets, such as bank accounts or investments, were not held in joint tenancy or designated to transfer on death. The deceased had personal property valued at over $74,000 (as of 2023). If an estate falls below this threshold and does not include real estate, the beneficiaries can often use a Small Estate Affidavit to claim the assets without going through probate. Types of Probate in Colorado Colorado has three main types of probate procedures: small estate procedures, informal probate, and formal probate. The type of probate required depends on the estate’s value and whether there are disputes among heirs or creditors. Small Estate Procedure (Collection by Affidavit) The small estate procedure can be used if the value of the deceased’s assets is less than $74,000 and does not include real estate. This process involves filling out a Small Estate Affidavit, which allows the heirs to collect and distribute the assets without opening a probate case in court. It is the simplest and fastest way to handle a small estate. Informal Probate Informal probate is used when there is a valid will and no disputes among heirs or creditors. The process is overseen by a court-appointed Personal Representative (executor), but there is minimal court supervision. Most of the process, such as distributing assets and paying debts, is handled by the Personal Representative, with only basic filings required with the court. Informal probate is less time-consuming and costly than formal probate. Formal Probate Formal probate is required when there are disputes regarding the will’s validity, disagreements among heirs, or if the estate is complex and needs court intervention. The process is supervised by the court, and all major decisions, such as approving the distribution of assets, must be approved by a judge. Formal probate can take much longer and involve more legal fees than informal probate. Steps in the Colorado Probate Process While the specific steps in probate can vary depending on the type of probate and the complexity of the estate, the general process in Colorado typically includes the following: Filing the Probate Petition The process begins with filing a Petition for Probate with the appropriate Colorado probate court. The petition is usually filed by the executor named in the will or an interested party if no will exists. Appointment of the Personal Representative The court will appoint a Personal Representative (executor) to manage the estate. If there is a valid will, the person named as executor is typically appointed. If no will exists, the court will appoint someone, usually a family member, to serve as the Personal Representative. Notice to Heirs and Creditors The Personal Representative must notify all potential heirs and creditors of the probate proceeding. This step is essential for providing an opportunity for interested parties to come forward and make claims against the estate. Inventory and Appraisal of Assets The Personal Representative must create an inventory of all the deceased’s assets and have them appraised if necessary. This inventory will include real estate, personal property, financial accounts, investments, and any other assets owned by the deceased. Paying Debts and Taxes Before distributing assets, the Personal Representative must pay off the deceased’s debts and any taxes owed. If the estate does not have enough assets to cover all debts, Colorado law dictates the order in which creditors are paid. Distribution of Assets Once all debts and taxes have been paid, the Personal Representative can distribute the remaining assets to the beneficiaries according to the will or, if no will exists, according to Colorado’s intestacy laws. Closing the Estate After all assets have been distributed and all required filings have been made with the court, the Personal Representative can file a Petition for Final Settlement to close the estate. Once approved, the Personal Representative’s responsibilities are complete. Challenges and Disputes in Colorado Probate Unfortunately, probate can sometimes become contentious, especially in cases involving high-value estates or when family members disagree on how assets should be distributed. Some common challenges in Colorado probate include: Will Contests Heirs or beneficiaries may challenge the validity of a will, claiming it was signed under duress, there was undue influence, or the deceased lacked the capacity to create the will. Will contests can significantly delay the probate process and require formal probate to resolve. Executor Misconduct If an executor is not fulfilling their duties or is mishandling estate assets, beneficiaries can file a complaint with the court and request the executor’s removal. Disputes Among Beneficiaries Disputes can arise over specific bequests, how assets are divided, or even the valuation of estate property. Mediation or formal court intervention may be necessary to resolve these disputes. How a Colorado Probate Attorney Can Help Navigating the probate process can be overwhelming, particularly when dealing with the emotional aftermath of losing a loved one. An experienced probate attorney can help in several ways: Guiding You Through the Process An attorney can explain the probate process, help you understand your rights and responsibilities, and ensure all legal requirements are met. Managing Court Filings and Deadlines Probate involves numerous legal documents and deadlines. An attorney can handle these tasks, ensuring that everything is filed correctly and on time. Resolving Disputes If disputes arise, an attorney can provide representation in negotiations, mediation, or court hearings to protect your interests and work toward a fair resolution. Minimizing Costs and Delays With the guidance of a skilled attorney, you can often minimize the time and expense associated with probate, helping ensure the process goes as smoothly as possible. How The McKenzie Law Firm, LLC Can Help At The McKenzie Law Firm, LLC, we understand the complexities of the probate process and are committed to helping families navigate it with compassion and expertise. Whether you’re an executor needing assistance with your duties or a family member looking to understand your rights, our experienced probate attorneys can provide the support you need. If you have questions about probate in Colorado or need legal assistance, contact us today to schedule a consultation. We are here to guide you through the process and ensure your loved one’s wishes are honored.
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