Joint Trusts or Separate Trusts: Advice for Married Couples

Unless you have a specific need for separate trusts, it’s usually best to avoid the headaches they cause and go with a joint trust instead. Here’s why.

A happy couple sits together on a log in the woods
(Image credit: Getty Images)

A revocable living trust is usually the best way to pass your assets to your heirs after you are gone.

Unlike a will, assets titled in a revocable living trust avoid both the time and expense of going through the probate courts and keep your financial affairs from becoming a matter of public record.

And like any good estate plan it can be used to plan for the possibility of your being incapacitated, reduce or avoid any death tax, make sure the right heirs get your assets after you‘re gone, and it does not change the tax treatment of your assets while you’re alive.

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Separate or Joint?

A married couple has a choice of setting up either a joint trust or separate trusts. In situations where both spouses want the surviving spouse to inherit all the assets, which is often the case, a joint trust can be far less complicated to set up and maintain than separate trusts, with less headaches for the surviving spouse. However, there are situations where separate trusts will be a better choice.

Common Advantages of Separate Trusts

  • Separate trusts may offer better protection from creditors, if this is a concern. For example, at the death of the first spouse, the deceased spouse’s trust becomes irrevocable, which makes it harder to access by creditors. And yet the surviving spouse can still access it for income and other needs.
  • In cases where a spouse wants some or all of their assets to go to other heirs besides the surviving spouse, separate trusts may be a better solution. A common example is when one of the spouses has children from a previous marriage and they want to provide for their spouse, but also make sure their kids eventually receive the funds. They could set up a qualified terminable interest property trust, which would allow them to leave assets for the surviving spouse to provide them with income, while the balance of the funds are held in trust until the surviving spouse’s death, at which point they’re paid out to the children from the previous marriage.
  • Separate trusts can be used to reduce or eliminate death tax. For most married couples federal death tax will not be a problem, because a married couple has a combined estate tax exemption of $23.16 million (going up to $23.4 million in 2021), which means if the value of their estate is under this amount they will have no federal death tax to be concerned with. However, there are 12 states, plus the District of Columbia, that have a state estate tax, and another six states with an inheritance tax. Assuming you live in a state with a death tax, if your net worth is above the state's exemption level — which can be as low as $1 million — your heirs could be subjected to this tax. That’s when separate trusts as part of a credit shelter trust, would allow the spouses to double their estate tax exemption, resulting in reducing or completely eliminating this death tax.

When a Joint Trust May Be Better

Assuming you have no creditor concerns, both spouses want all the assets to go to the surviving spouse, and state death tax will not be an issue, a joint trust may be the way to go, for several reasons:

  • A joint trust is easier to fund and maintain during the couple's lifetime. They don't need to think about the hassle of equalizing the value of each of their separate trusts or trying to decide what assets to title in one trust or the other, since everything goes into one trust.
  • A joint trust requires less work at tax time. It does not become irrevocable until both spouses have passed and therefore eliminates the need to file an extra trust tax return. With separate trusts, at the death of the first spouse that spouse’s trust becomes irrevocable and a separate trust tax return must be filed each year, which generates extra cost and can be a nuisance.
  • A joint trust is not subject to the much higher trust tax brackets since it does not become irrevocable at the death of the first spouse. On the other hand any investment or interest income generated in an account titled in a deceased spouse’s trust, since it is now irrevocable, will be subject to trust tax brackets, which will trigger more tax for the surviving spouse, if the income isn’t taken out by Dec. 31 of each year. This will make it difficult for the surviving spouse to compound or reinvest the income into the same investment, since if it’s is not pulled out of the account by year end, in most cases, it will trigger a significant amount of extra tax.
  • In a joint trust, after the death of the first spouse, the surviving spouse has complete control of the assets since an irrevocable trust with its restrictions is not created. When separate trusts are used, the deceased spouses trust becomes irrevocable at their death, and the surviving spouse has limited control over these assets, typically restricted to withdrawals for health, education, maintenance and support.
  • It can make real estate transactions easier to deal with. If a piece of real estate, like a house, is titled in a joint trust and a surviving spouse sells the house with the intention of using the sales proceeds as a down payment for another house, any lender would be happy to loan them the money as long as they had reasonably good credit. On the other hand if the house is titled in a deceased spouse’s trust, the surviving spouse may have difficulty finding a lending institution that will make them the loan since the house would be titled in an irrevocable trust. This is because irrevocable trusts provide very strong protection against creditor claims, which will make it hard for the lender to secure its loan with a lien on the property and foreclose if there’s a default.

What to Do?

In many cases a joint trust may not be appropriate, but on the other hand, if the advantages of separate trusts are irrelevant to you and you don’t mind the surviving spouse getting the money, don’t volunteer for the unnecessary headaches of separate trusts.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Mike Piershale, ChFC
President, Piershale Financial Group
Mike Piershale, ChFC, is president of Piershale Financial Group in Barrington, Illinois. He works directly with clients on retirement and estate planning, portfolio management and insurance needs.