Advantages and Disadvantages of Using Joint Revocable Trusts in Estate Planning

Basic estate planning includes the following estate planning documents: living will (do not resuscitate document), durable power of attorney for health care (incapacity planning document for health care-related decisions), durable power of attorney for finances (incapacity planning document for financial-related decisions), last will and testament and in some cases, the revocable living trust (or Joint Trust). The revocable living trust can be drafted for a single individual or married couple. Married individuals can either have their own separate revocable living trusts or in some limited cases, a joint revocable living trust.

Joint Trust Agreement

Historically, joint revocable living trusts have been used as a mechanism for married persons to combine assets and control their disposition in a uniform manner in community property states (such as California, Texas, Arizona, Idaho, Louisiana, New Mexico, Washington, Wisconsin and Nevada). In such community property states, spousal assets only receive a half “stepped” up basis at death. Stepped up basis means that the property’s basis equals the fair market value of the property at a person’s death, resulting in no gains tax. When using a joint revocable trust in the estate planning, married individuals can take advantage of the unique “double basis.” Specifically, on the death of the first spouse, property owned by the joint revocable trust (Joint Trust) is “stepped up” entirely to fair market value, even though only one-half of the property is included in the predeceasing spouse’s estate for estate tax purposes. This allows for optimal planning in community property states.

In separate property states, such as Florida, such tax benefit for the Joint Trust is not necessary and the traditional separate marital trusts are usually a better option for estate planning. Separate trusts facilitate enhanced creditor protection and ease of administration. Further, such revocable living trusts are easier to amend and are much less flexible after the first spouse’s death. Therefore, in Florida it is more advantageous, in most cases, to use separate marital revocable trusts for estate planning.

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