Among the most common estate plans for married couples is what is sometimes called a love estate plan. Said plan provides that the entire estate of the deceased spouse passes to the surviving spouse; Upon the death of the surviving spouse, whatever is left will pass to the couple’s children or other designated heirs. Mutual reciprocal wills can be used to achieve this purpose. Of course, upon the death of the surviving spouse, her estate will have to go through the probate process.
A more sophisticated version of a love plan incorporates the use of a joint revocable living trust. There are many variations on an estate plan that uses a joint trust. Basically, though, all of the couple’s assets are held in the trust’s name, and both spouses act as co-trustees. Upon the death of the first spouse, all assets remain in the trust and the surviving spouse continues to serve as the sole trustee of the trust. During the life of the surviving trust, he or she is free to modify or even revoke the trust agreement, change the beneficiaries, and dispose of the trust assets as they see fit. Among the advantages of using a trust, instead of reciprocal wills, is the avoidance of probate. However, this model may not work well in a mixed family situation where each spouse may have different natural heirs due to the ability of the surviving spouse to favor their own children by disposing of the remaining trust assets.
A variation of the above is a joint trust that incorporates a survivor trust that is created after the death of the first spouse. The survivor trust is funded by the separate property of the surviving spouse and the couple’s share of the community property. In the meantime, the assets of the joint trust that were owned by the deceased spouse are used to pay the decedent’s administrative expenses, debts and liabilities, and any specific bequests made by that spouse. So, for example, in the blended family situation, the first deceased spouse can support their own children, while also supporting the surviving spouse by directing the remainder of the decedent’s share to go to the survivor’s trust.
Another alternative to a married couple’s estate plan is the use of separate trusts. In this arrangement, each spouse places their separate property and an equal share of the couple’s community property in a separate trust. Each spouse is treated as the owner of the assets in that spouse’s trust. By naming both spouses as co-trustees of both trusts, both spouses can maintain control over the community assets in the respective trusts. Upon the death of a spouse, her trust becomes irrevocable and is distributed according to her instructions in the trust instrument.
A couple considering the use of a trust in their fiancé plan should weigh the advantages and disadvantages of separate trusts versus joint trusts. A joint trust is created by a single trust document that serves to reduce the initial costs of setting up the estate plan. A joint trust may better reflect how the married couple views their assets, that is, as ours rather than theirs and theirs. However, separate trusts offer better asset protection from creditor claims, particularly in cases where only one spouse is vulnerable to such claims. Using separate trusts can protect the assets of the other spouse and prevent creditors of the debtor spouse from reaching those assets. Separate trusts also serve to avoid asset tracking problems that can arise with the use of joint trusts. When the couple has their assets in a joint trust, the surviving spouse will need to itemize and value the assets in the trust after their spouse’s death, which can be a difficult process if the assets have been commingled over the years.
Married couples have many choices when it comes to creating an estate plan that meets their mutual needs and ensures that their respective assets pass to their intended beneficiaries. Separate trusts can offer greater asset protection and ease of administration after the death of the first spouse. Rather, the psychological benefits of a joint trust may outweigh the advantages of separate trusts for a married couple who agree on how they want their estate transferred.
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