Some married couples look at their property and financial accounts as “yours, mine, and ours,” especially if they are a blended family, married later in life, or either spouse brought significant financial obligations or assets to the relationship. Deciding how these assets should be distributed to your heirs can be a huge undertaking. To help you avoid some of the related stress, we often suggest a unique estate planning tool, commonly referred to as a pour-over trust.
What is a joint pour-over trust?
A joint pour-over trust holds the joint property belonging to you and your spouse. You can both serve as trustees, and the trust can be created together. At the time one of you passes away, half of the joint trust’s assets can be distributed to the decedent’s separate trust, and the other half is distributed to the surviving spouse’s separate trust.
Does this mean that we will need three trusts?
For your estate plan to work as intended, you might need three trusts. That’s because property owned jointly will go into your joint pour-over trust, while property owned separately will funnel into your own separate trusts. This way, you can provide separate instructions to deal with the distribution of the property you own, regardless of whether it is owned jointly or separately.
Also, because property is distributed to the respective individual trusts, there is nothing more for the joint pour-over trust to do once one of you passes away. Because of this, no extended administration is usually necessary after the first death.
What are some other benefits of a joint pour-over trust?
Ease of administration.
A joint trust allows for smoother trust administration because both of you retain control over your joint property.
Often, people consider a trust-based plan to avoid probate. If joint accounts and property are held in trust, and both spouses pass away at the same time, their heirs may avoid probate if the trust instructions clearly dictate what happens to property and accounts. Therefore, choosing a backup trustee who will carry out your instructions—without court supervision—is also an important consideration.
It is Easy to Fund the Trust.
Joint pour-over trusts make funding joint accounts easier because both of you control it. However, it’s important to remember that some financial institutions may not allow two trusts to have joint ownership of the same account, even though an account can normally be owned jointly by two people.
Sometimes, this technicality may derail your planning or increase the risk of your assets being probated should the two of you die simultaneously while still owning your accounts and property jointly as individuals.
Keeping assets separate.
Through allocation of your joint property into your joint pour-over trust, and separate assets to individual trusts, separate property and accounts will remain just that; separate. This makes it easier to administer your estate according to your wishes.
This type of arrangement can be especially beneficial if you have a blended family, and only one of you wants to provide for previous children from a previous relationship. In some cases, however, these accounts or pieces of property may have already been handled separately. Therefore, commingling them in a joint trust may muddy the waters and run contrary to your desires.
Double step-up in tax basis.
In community property states, placing joint accounts and property in a joint pour-over trust may enable you to preserve the nature of your accounts and property, and allow for the double step-up in tax basis (once at each of your deaths). If you divided ownership of these accounts or property between two separate trusts, you may risk losing the double step-up in basis.
Having joint and separate accounts or property doesn’t necessarily mean you can’t carry out your estate plan as you wish. Together, we’ll assess what you own - and how you own it, then talk about what should happen to your assets after you pass away. Call us anytime at 904-877-1010, or visit us online at RiseUpLegal.com, and together we can craft a plan that works for you, your spouse, and your loved ones.