Separate Trusts keep one spouse’s assets distinct from the other. Creating Separate Trusts may be a smart decision for couples who own separate property, either from previous marriages or relationships, or from inheritance. A Separate Trust may also be beneficial if there is a prenuptial agreement in place that specifies title to property and earnings and separates them. However, administration of Separate Trusts may be more expensive as two trusts are in place instead of one jointly.
As for Joint Trusts, this option allows for more flexibility. When property is placed into a Joint Trust, the shared property can stay as is upon the death of one spouse without needing to be retitled. However, a Joint Trust may not offer as much asset protection in comparison to Separate Trusts. This post will go into further detail on asset protection for each type of Trust.
Asset Protection
Should either spouse experience any financial risks, assets inside individual Separate Trusts may be better protected. However, it is important to note that there are numerous factors that dictate the level of protection assets placed in separate trusts may be.
For Joint Trusts, marital assets are all together in one single trust. If there is ever a judgment over one of the spouses, all of the assets could end up at risk, resulting in less asset protection. In Florida specifically, a Florida Community Property Trust (FLCPT) is a joint trust that holds the assets of a married couple and while both spouses are alive the assets may be generally used for their benefit. Upon the death of the first spouse, even if the FLCPT is made as irrevocable, a surviving spouse may amend the community property trust regarding the deceased spouse’s one-half share. Unless the agreement provides otherwise, the trustee has the power to divide the assets in any manner between the surviving spouse’s share and the deceased spouse’s share provided that the division results in each spouse receiving equal aggregate value.
Tax Benefits
Estates are only subject to federal estate tax if it reaches the threshold of $12.92 million per individual or $25.84 million per married couple.
Assets and property placed in a joint trust can earn the same estate tax marital deduction as a separate trust would.
During Couple’s Lifetime
Depending on how the assets are titled and divided, holding them in Separate Trusts may bring complications. For assets to be placed in individual Trusts, they first need to be separated in title. Separate Trusts between spouses create additional management complications. To avoid complications, it is common for each spouse to name the other spouse as a co-trustee to simplify processes and allow each other to have access on the others’ behalf.
While both spouses are living, each one has equal control over the management of joint assets held in the Joint Trust.
Upon Death of Spouse
With Separate Trusts, since there are two trusts in place, there is more flexibility in navigating the process after the first spouse’s death. The biggest differentiation is that the surviving spouse would be unable to change or revoke any portion of the deceased spouse’s Trust. The Trust becomes irrevocable and protects the assets from going to anyone other than who it is intended for.
As for Joint Trusts, in the best scenario, couples can agree about how assets should be divided and distributed in the case that one spouse passes. In some cases, upon the death of the first spouse, the Joint Trust may need to be separated into two and assets distributed and divided accordingly. Under typical circumstances, the surviving spouse would become the sole trustee. The surviving spouse would then have access to control the shared property, and the personal property of the deceased spouse would be distributed to the beneficiaries.
