Joint Trusts vs. Separate Trusts - Which is Right for Married Couples?

Including a revocable trust in your estate plan offers several benefits, such as reducing probate costs, maintaining privacy, and ensuring asset management in case of incapacity. Revocable trusts also provide flexibility, allowing you to amend or revoke them at any time. If you’re married, however, you’ll need to decide whether a joint trust or separate trusts are better suited to your needs. The right choice depends on factors like your financial situation, family dynamics, and state laws.

Simplicity of Joint Trusts

A joint trust is often simpler to establish and manage, especially if you and your spouse are comfortable inheriting each other’s assets. Assets are pooled into a single trust, eliminating the need to divide them between two separate trusts.

During your lifetimes, you and your spouse share equal control over the trust’s assets, simplifying transactions and day-to-day management. However, if you prefer to retain individual control over certain assets, separate trusts may be a better option.

Asset Protection with Separate Trusts

Separate trusts generally provide stronger asset protection. With a joint trust, creditors of one spouse may be able to claim all trust assets. In contrast, assets in a separate trust are typically shielded from the other spouse’s creditors.

Additionally, when a spouse with a separate trust passes away, their trust becomes irrevocable, making it harder for creditors to access those assets. The extent of protection depends on factors like state laws, the type of debt, and whether a prenuptial agreement is in place.

Tax Implications

For most couples, federal gift and estate taxes aren’t a concern due to the combined exemption of over $27 million in 2024 and 2025. However, couples with wealth exceeding the exemption—or those in states with lower estate tax thresholds—may find separate trusts beneficial for maximizing tax savings.

Separate trusts allow each spouse to fully utilize their individual estate tax exemptions, which can be critical in states where exemptions range from $1 million to $2 million.

Income tax is another consideration. After the death of one spouse, their separate trust becomes irrevocable, requiring annual tax filings and potentially subjecting income to higher trust tax rates. In contrast, a joint trust remains revocable until both spouses pass, allowing the surviving spouse to be taxed at individual rates.

Weighing the Pros and Cons

Both joint and separate trusts have their benefits and drawbacks. A joint trust may offer simplicity and convenience, while separate trusts provide enhanced asset protection and tax planning opportunities. Contact us to discuss your unique circumstances, and we’ll help you determine which trust arrangement aligns best with your estate planning goals.