Estate planning attorneys ask clients if they include a Revocable Living Trust (RLT) in their plan. If an RLT makes sense, they pose a follow-up question. Does it makes sense to use a joint RLT or separate RLTs?
What Is a Revocable Living Trust (RLT)?
A trust allows an individual (grantor, settlor, trustor, or trust-maker) to transfer ownership of their accounts and property to a trustee. For most RLTs, the trustee and grantor are the same person. The trustee manages the property for the benefit of a beneficiary.
The grantor creates an RLT during their lifetime. The trustee may change the trust at any time. That is, unless the grantor becomes incapacitated or dies. To create the trust, the grantor changes the ownership of accounts and property. For example, they change the grantor from an individual to serve as the trustee. As a planning tool, an RLT enables the grantor to name themselves as the current trustee. Also, they designate a co-trustee or substitute trustee to act on their behalf. This happens if they become unable to act as a trustee. An RLT also allows the grantor to continue enjoying money and property during their lifetime. It also defines what will happen to their money and property when they die.
The Difference between a Separate RLT and a Joint RLT
When a married couple (the grantors) uses a joint RLT for estate planning, they also serve as initial trustees of the trust. The grantors then combine their separate property and joint property into the same trust. They also typically name both parties as trustees and beneficiaries. However, they may also designate which property qualifies as “joint” and which remain separate. They use schedules attached to the trust to do this. Also, grantors of a joint RLT designate what happens to joint and separate property at first death and second deaths.
On the other hand, when a married couple uses separate RLTs, they establish two separate trusts. Also, each individual transfers their separate property into their own trust (one grantor per trust). Thus, they split their jointly owned properties. Then, they transfer the resulting separate shares into their own trusts. As they acquire additional jointly owned property, the couple continues to divide the property as they see fit.
Why Would a Couple Use Separate RLTs?
Although a joint RLT preserves tax benefits for those in community property states, reasons exist to encourage the use of separate trusts in estate planning. This remains true regardless of whether the couple lives in a community property state.
Conclusion
Separate RLTs in a marriage can make sense in some situations. They offer several benefits:
- Enhance asset protection for married couples.
- Simplify trust administration after one or both spouses die.
- Clarify the division of property in a remarriage or blended family situation.
About Skvarna Law in Glendora & Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. Also, we provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma.
