If you and your spouse are planning for the future, you may be wondering whether a joint trust or individual trusts are the better fit.
At Jordan & White, we’ve spent more than 2 decades helping families across Massachusetts with estate planning, probate, and real estate matters. Choosing the right type of trust can affect everything from taxes to how smoothly assets are managed or passed down.
In this article, we’ll break down the key differences between joint and individual trusts, so you can make a confident, informed decision that fits your family’s goals.
What are Joint and Individual Trusts?
A joint trust is one legal entity that both spouses set up together. Assets from both spouses are transferred into this single trust, and they share control and management during their lifetimes. If one spouse passes away, the surviving spouse usually continues to oversee the trust.
An individual trust, on the other hand, is set up separately by each spouse. Each spouse can decide which assets to place in their own trust, and they keep control over what happens to their share. This arrangement can be handy when spouses have different goals, separate property, or children from prior relationships.
Key Differences Between Joint and Individual Trusts
Before choosing which arrangement suits you, it helps to see how these trusts differ in several core areas. Let’s walk through these distinctions one by one.
Asset Ownership and Control
In a joint trust, both spouses jointly manage everything placed into the trust. One spouse’s decision often affects all trust assets, and the trust usually spells out how decisions should be made if one spouse becomes incapacitated.
With individual trusts, each spouse is in charge of their own assets. You would have decision-making power over your trust items while your partner manages whatever is in theirs.
Asset Protection
Individual trusts typically offer stronger protection against claims or judgments. If a creditor wins a judgment against one spouse, that creditor generally cannot reach assets held in the other spouse’s separate trust. This can be comforting for couples where one person faces higher financial exposure.
A joint trust, by contrast, might not provide the same shield. If a creditor claims a significant debt against one spouse, the entire trust could be exposed because all assets are merged into one entity.
Tax Implications
The federal gift and estate tax exemption is relatively large, but some states charge estate or inheritance taxes at lower thresholds. If you live in a state with more stringent rules, you might want to consider how each spouse can use their own exemption. Individual trusts can allow couples to reduce these taxes by letting each spouse fully use whatever state-level exemption is available.
When one spouse in an individual trust arrangement passes on, that spouse’s trust becomes irrevocable, and the trust begins filing taxes at trust rates. These rates can be high if the trust retains a good chunk of income. Meanwhile, a joint trust stays revocable as long as one spouse remains alive. The surviving spouse pays tax personally, typically at lower individual rates, until they pass on.
Administration After Death
With individual trusts, once someone passes on, the surviving spouse cannot alter or revoke the deceased spouse’s trust. This preserves the deceased spouse’s intentions and helps children or other devisees receive what was originally planned. It also prevents changes that could entirely redirect assets away from the deceased spouse’s intended devisees.
A joint trust might require dividing into separate shares after the first spouse dies. There can be short-term complexity as the surviving spouse figures out which assets become part of a credit shelter portion or a successor portion. On the bright side, if the couple’s home is held in a joint trust, transferring or selling real estate can be easier for the surviving spouse.
Flexibility and Simplicity
Many couples like a joint trust because it can be simpler to create and administer. Instead of splitting up the property between two trusts, everything is gathered in one legal container, which can be easy in day-to-day life.
Individual trusts can take more time to organize and fund. You might need to re-title each item into the proper trust, which can feel like a lot of paperwork. Yet, some couples decide the extra effort is worth it for better creditor protection or a more precise plan for blended-family issues.
Pros and Cons of Joint Trusts
It’s helpful to break down the benefits and drawbacks of a joint trust. Here are a few main points to think about.
Pros
- Asset management during both spouses’ lifetimes is straightforward. One trust holds shared property, so everyday transactions and updates can be less complicated.
- Transferring property in and out of the trust can be smooth, even if you name different devisees for some assets.
- After the first spouse passes away, the surviving spouse keeps managing the joint trust. This continuity can simplify tasks like paying bills or handling minor changes.
- Shifting real estate or shared accounts into the trust is often easier because there’s only one set of trust paperwork to manage.
Cons
- Fewer protections might be available if a creditor goes after one spouse. Because assets are combined, creditors may go after the entire trust.
- Administration can become more involved when one spouse dies. The trust might need to be divided or partially locked to honor the deceased spouse’s share.
- In blended families, the surviving spouse might gain control over assets that the deceased spouse intended for their biological children.
Pros and Cons of Individual Trusts
Some couples prefer keeping their assets separately titled and managed. Below are a few reasons why this can work out as well as a few possible difficulties.
Pros
- Ideal for spouses with property from previous marriages, inheritances, or large personal assets. Each spouse keeps full authority over their portion.
- Often, stronger protection for your property if the other spouse faces lawsuits or creditors. Assets in one spouse’s trust generally remain beyond the reach of the other spouse’s creditors.
- Helpful for couples who signed a prenuptial agreement. Each trust can follow the agreement’s guidelines, retaining each spouse’s wishes.
- Guarantees that certain assets definitively stay in line with original instructions, such as gifts to children from an earlier marriage, even if the other spouse has a different viewpoint.
Cons
- Setting up two trusts can cost more in paperwork, deeds, or bank retitling fees. You and your spouse each create and maintain a separate legal arrangement.
- In community property states, dividing property into individual trusts might clash with local rules on marital assets. You may need guidance on how to classify and title each item.
- If one spouse dies, the irrevocable trust must pay trust-level taxes on undistributed income. If the trust doesn’t distribute that income to devisees, it can lead to steeper taxes.
Additional Trust Options for Married Couples
The world of trusts comes with variations. You and your spouse might consider these other paths if joint or individual trusts don’t entirely match your goals:
- Credit Shelter Trusts (A/B Trusts): Sometimes called split trusts, they become two trusts after the first spouse dies. One trust (often labeled the B trust) may optimize estate tax exemptions.
- Qualified Terminable Interest Property (QTIP) Trusts: Historically, couples used these to manage large estates. The surviving spouse still benefits while the trust ultimately passes to chosen heirs.
- Marital Deduction Trusts: Frequently used to address the needs of spouses who each have children from previous relationships while still providing for the surviving spouse.
- Marital Lifetime Revocable Trusts: A straightforward approach that remains revocable as long as either spouse is living, making day-to-day oversight more direct.
- Marital Disclaimer Trusts: Permits assets to flow to the surviving spouse. If the surviving spouse chooses, they can disclaim those assets into a second trust, potentially saving taxes.
Some couples use these trusts in tandem with either a joint or an individual approach. It depends on their financial situation and long-range goals.
| Feature | Joint Trust | Individual Trust |
| Asset Management | Shared control, single trust entity | Separate control for each spouse |
| Creditor Protection | Less protection if one spouse is sued | Strong separation of assets |
| Tax Filing | Surviving spouse taxed individually after first death | Deceased spouse’s trust files at trust tax rates |
| Estate Administration | May require a partial split upon first death | Each trust stands on its own; no changes to the decedent’s trust |
| Ease of Setup | Often quicker to create and fund | More steps to retitle separate assets |
Considering a Trust? Contact Jordan & White, Today
We’re here to help couples design a plan that suits their finances, family structure, and wishes. Our firm focuses on personal service and custom solutions, drawing on experience in estate planning, real estate, and probate. If you’d like to talk through your trust choices, feel free to call us at 978-744-2811 or send a message through our Contact Us page. We’ll do our best to guide you in shaping a roadmap that brings you comfort and clarity.