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?

1. 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.
2. 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.
3. Get a copy of our estate planning checklist to see where you currently stand.
4. Learn more by reading our blog or watching our videos .