Many married couples share almost everything, including finances. This may be reflected in their estate plan by using one joint living trust instead of two separate trusts. Separate trusts can provide greater flexibility, but a joint trust can be structured so that when one spouse passes away, the trust is split into two subtrusts: a survivor's trust and a decedent's trust.
This arrangement provides the surviving spouse the same versatility as separate trusts. The surviving spouse has complete control over their survivor's trust but may have limited control over the deceased spouse's accounts and property that make up the decedent's trust.
A survivor's trust is a middle ground between joint and separate trusts.
If a couple combines their assets (accounts and property) into a joint revocable living trust, both spouses will usually be named as trustees and beneficiaries. The joint trust can further stipulate that when one spouse passes away, the trust divides into subtrusts.
One of those subtrusts can be a survivor's trust. A second subtrust, the decedent's trust, will also be created to hold and manage assets the decedent owned.
A typical joint trust arrangement lists four types of property, depending on the state in which you live:
When the first spouse dies, the survivor's trust receives one-half of the community property, one-half of the joint property, and all property identified as the surviving spouse's separate property. The deceased spouse's half of the community property and joint property, along with their separate property, may be funded into the decedent's trust with its own set of instructions. The trust agreement could also state that all of the deceased spouse's property will go into the survivor's trust instead of going into a separate subtrust.
Regardless of exactly how the joint trust assets are allocated, a crucial distinction is that a survivor's trust is revocable, while the decedent's subtrust is irrevocable.
This means the surviving spouse retains complete control over the survivor's trust. They can alter the terms of the trust however they want. For example, they can add and remove assets, change beneficiaries, appoint new trustees, or terminate the trust. The surviving spouse can also completely change the terms of the survivor's trust.
While the surviving spouse may be the beneficiary of the decedent's trust, the surviving spouse will likely have less control over the management of assets in the decedent's trust. This allows the deceased spouse to put protective measures in place while they are alive to make sure that their assets are managed the way they want and that someone cannot change the rules after they pass away. This can be helpful for clients who are worried about their spouse remarrying after their death by ensuring that assets that remain at the surviving spouse's death go to a predetermined person. The purpose of any trust is to take care of loved ones and protect assets from costly probate and taxes. Book a call to discuss an estate plan that meets your goals
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