Many married couples have turned to a living trust as a way to safeguard the assets they want to pass on to the next generation. As a matter of course, most of these couples create a shared trust that shelters their assets as a joint unit.
But there are also instances in which separate trusts may make more sense. Client couples who are considering establishing a living trust should know what their options are, and to those with existing shared living trusts may also appreciate hearing about the benefits of a shared trust. Some things to keep in mind:
Advantages of a separate trust
- Couples who own mostly separate property acquired before the marriage may want to consider a separate trust. This often applies to couples who have prior marriages and are getting together later in life.
- A shared trust gives both members of the couple equal authority over all the assets contained in the trust. If there is property that one partner or the other wants to maintain sole control over – say, a vacation home that has been on one side of the family for generations – separate trusts might make more sense.
- If the spouses have signed a prenuptial agreement keeping each spouse’s earnings and property separate, then obviously two separate trusts would work better.
- Unmarried couples – for instance, same-sex couples residing in states that do not permit same-sex marriage – can certainly set up a shared trust for the two of them, but there are extra headaches involved with that. For instance, if the two members of the couple are filing separate income taxes, they would need to painstakingly divide each asset in the trust for IRS purposes. Also, such relationships do not qualify for the unlimited marital deduction, so a shared trust could result in gifts between the two members of the couple being taxable.
Advantages of a shared trust