Some married couples think about their accounts and property as “yours, mine, and ours.” This dynamic arises when they decide what should happen to all of these accounts and property at death. This thinking is especially prevalent if either spouse has gotten or will be remarried or married late in life. Alternatively, this could also prevail if one spouse brought or will bring a significant amount of assets into the marriage. To help alleviate some of the stress from making such decisions, we suggest a unique estate planning tool called the pour-over trust.
A joint pour-over trust holds your and your spouse’s joint property. When the first of you passes away, half of the joint trust’s accounts and property distributes (pours over) to the deceased spouse’s separate trust. The other half distributes to the survivor’s separate trust. You can create the joint trust together and name yourselves as the current trustees.
You may need three trusts for the estate plan to work as intended. Jointly owned property goes into your joint pour-over trust, and separately owned property goes into your own separate trust. This setup allows you to provide different instructions for handling jointly and individually owned accounts and property. However, once the first of you dies, the funds and property distribute to the respective individual trusts. There is nothing more for the joint pour-over trust to do. Thus, it will not require a prolonged, ongoing administration after the first death.
A joint pour-over trust makes it easier to fund your joint accounts and property into it because both of you control it. While two people can jointly own an account, some financial institutions may not allow two trusts to own the same account jointly. This technicality can sometimes derail your planning. Or it could increase the risk of probate should the two of you die simultaneously while still holding your funds and property together as individuals.
The joint trust allows for ease of lifetime administration because you retain control over your joint property.
Avoiding probate is a popular reason for considering a trust-based plan. Suppose that your joint accounts and property are in a trust and you and your spouse pass away simultaneously. Your loved ones can avoid probate because the trust instructions will dictate what happens to the accounts and property. Your chosen backup trustee will carry out the instructions without court supervision.
Your respective funds and property remain separate by allocating your joint property to the joint pour-over trust and your different accounts and property to your individual trusts. It is easier to administer the trusts according to your wishes. Such an arrangement can be helpful if you or your spouse have children from a previous relationship whom only one of you wants to provide for at death. In some cases, however, these accounts or pieces of property may have already been handled separately, so commingling them in a joint trust may muddy the waters and run contrary to your desires.
In a community property state, placing your joint accounts and property in a joint pour-over trust may enable you to preserve the community property nature of your accounts and property, allowing for the double step-up in tax basis (once at each of your deaths). If you were to divide these accounts or property ownership between two separate trusts, you might risk losing the double step-up in basis.
Having joint and separate accounts or property does not mean that you cannot fulfill your estate planning wishes. Working together, we can assess what you own and how you own it and discuss your wishes about what should happen to those accounts and property at your death. Call us today so we can craft a plan that works best for you, your spouse, and the rest of your loved ones.
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14425 Falcon Head Blvd
Austin, TX 78738