Among the more shared estate plans for married couples is what is sometimes referred to as a sweetheart estate plan. Such a plan provides for the entirety of the deceased spouse’s estate to pass to the surviving spouse; on the death of the surviving spouse, in any case remains will pass to the associate’s children or other designated heirs. Mutual reciprocal wills can be used to accomplish this intent. Of course, on the death of the surviving spouse, his or her estate will need to pass by the probate course of action.
A more complex version of a sweetheart plan incorporates the use of a joint revocable living trust. There are many variations to an estate plan employing a joint trust. Basically, though, all of the associate’s assets are held in the name of the trust with both spouses serving as co-trustees. Upon the death of the first spouse, all of the assets keep in the trust with the surviving spouse continuing to serve as the trust’s only trustee. During the surviving trust’s lifetime, she or he is free to modify or already revoke the trust agreement, change beneficiaries and otherwise dispose of trust assets as he or she sees fit. Among the advantages to using a trust, instead of reciprocal wills, is probate avoidance. However, this form may not serve well in a blended family situation where each spouse may have different natural heirs because of the surviving spouse’s ability to favor his or her own children when disposing the trust’s remaining assets.
A variation on the above is a joint trust which incorporates a survivor’s trust which is produced following the death of the first spouse. The survivor’s trust is funded with the surviving spouse’s separate character and his or her proportion of the associate’s community character. Meanwhile the assets in the joint trust which were owned by the deceased spouse are used to pay administrative expenses, debts and limitations of the decedent and any specific bequests made by that spouse. So, for example, in the blended family situation, the first spouse to die can provide for his or her own children, while also providing for the surviving spouse by directing that the remainder of the decedent’s proportion passes to the survivor’s trust.
Another different for a married associate’s estate plan is the use of separate trusts. In this arrangement, each spouse places his or her separate character and an equal proportion of the associate’s community character in a separate trust. Each spouse is treated as the owner of the assets in that spouse’s trust. By naming both spouses as co-trustees of both trusts, both spouses can continue control over the community assets in the respective trusts. On the death of a spouse, his or her trust becomes irrevocable and is distributed in accordance with his or her instructions in the trust instrument.
A associate considering the use of a trust in their sweetheart plan should weigh the advantages and disadvantages of separate, as opposed to joint, trusts. A joint trust is produced by a single trust document which serves to reduce the initial costs of establishing the estate plan. A joint trust may better mirror how the married associate views their assets, i.e., as ours as opposed to his and hers. Separate trusts, however, offer better asset protection from creditor claims, particularly in situations in which only one spouse is unprotected to such claims. The use of separate trusts can protect the assets of the other spouse and prevent those assets from being reached by creditors of the debtor spouse. Separate trusts also serve to avoid the problems of asset tracing which can arise with the use of joint trusts. When the associate has their assets in a joint trust, the surviving spouse will need to itemize and value trust assets following the death of his or her spouse, which can be a difficult course of action if assets have been commingled over the years.
Married couples have many alternatives insofar as creating an estate plan that meets their mutual needs and ensures that their respective estates will pass to their intended beneficiaries. Separate trusts may offer enhanced asset protection and ease of administration following the death of the first spouse. By contrast, the psychological benefits of a joint trust may outweigh the advantages of separate trusts for a married associate who are of one accord as to how they want their estate to pass.
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