Among the most common succession plans for married couples is what is sometimes called a love succession plan. Said plan provides that the entire estate of the deceased spouse passes to the surviving spouse; Upon the death of the surviving spouse, what remains will pass to the couple’s children or other designated heirs. Mutual reciprocal wills can be used to achieve this purpose. Of course, in the event of the death of the surviving spouse, your 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 of an estate plan that uses a joint trust. Basically, however, 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 beneficiaries and dispose of the trust assets as he or she sees fit. Among the advantages of using a trust, rather than reciprocal wills, is probate avoidance. However, this model may not work well in a mixed family situation where each spouse may have different natural heirs due to the surviving spouse’s ability to favor their own children by disposing of the remaining assets of the trust.
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 their share of the couple’s community property. Meanwhile, the assets of the joint trust that were owned by the deceased spouse are used to pay the deceased’s administrative expenses, debts and liabilities and any specific bequests made by that spouse. So, for example, in the mixed family situation, the first spouse who dies can support their own children, while also looking after the surviving spouse by ordering the remainder of the deceased’s share to go into 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 appointing 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, their trust becomes irrevocable and is distributed according to your instructions in the trust instrument.
A couple considering the use of a trust in their love plan must weigh the advantages and disadvantages of separate trusts, as opposed to joint trusts. A joint trust is created through a single trust document that serves to reduce the initial costs of establishing the estate plan. A joint trust can better reflect how the married couple views their assets – that is, as ours rather than his and hers. However, separate trusts offer better asset protection against creditor claims, especially in cases where only one spouse is vulnerable to such claims. Using separate trusts can protect the other spouse’s assets and prevent the debtor spouse’s creditors 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 the death of their spouse, which can be a difficult process if the assets have been mixed up over the years.
Married couples have many alternatives as they create an estate plan that meets their mutual needs and ensures that their respective estates will pass to their intended beneficiaries. Separate trusts can offer greater asset protection and ease of administration after the death of the first spouse. In contrast, 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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