Married couples who want to ensure that their estate is handled smoothly can use a joint trust to intermingle their property. These arrangements can work well as an estate planning vehicle, especially for couples who want to have their estate avoid probate.
They can also be used to create more complex arrangements that protect assets and reserve gift tax exemptions, such as an A-B trust arrangement.
Joint trusts can be revocable or irrevocable, making them flexible and capable of satisfying many different family needs. Speak with an Albuquerque joint trust lawyer to learn more about the advantages these popular types of trusts can provide.
Schedule a consultation at New Mexico Financial Law to discuss your options for forming a joint trust with your loved one. Call 505-503-1637 or contact us online to schedule your no-obligation appointment today.
Whether you are forming a revocable or irrevocable joint trust, the decisions you make will have a sizeable impact on your assets and your estate plans.
Consider that any joint trust becomes irrevocable after the death of both spouses, which could create complications for your estate if you intended to alter the trust but never got around to it. Many joint trusts also split into two trusts after the death of just one spouse, forming an irrevocable trust out of the deceased spouse’s property.
And, of course, some joint trusts may start out as irrevocable, such as if the couple was looking to protect their assets from creditor claims.
In any of these cases, the rules of your joint trust and the way it is structured will have a profound effect on your family’s financial future. Working closely with an Albuquerque joint trust lawyer is the best way to ensure that you clearly understand all your options, enabling you to choose the perfect strategy to accomplish all of your top goals.
When you come to New Mexico Financial Law, you can expect personalized service. You can leverage our knowledge, guidance, and resources to make forming a trust as easy as possible.
Also, once your joint trust is formed, you can receive support from us any time you have questions, need to make changes, or otherwise need the help of an experienced Albuquerque joint trust attorney.
Some of the services you can receive from our law firm include:
Rest assured that when you use our Albuquerque joint trust law firm, we will help you set up the ideal trust for your unique asset portfolio, family, and long-term goals.
A joint trust operates similarly to any other trust, in that there are three main types of parties:
A joint trust usually absorbs the bulk of both spouses’ assets, including both separate and community property. The trust acts as a legal container for the assets, one that can provide many legal and financial benefits, especially in the event that one or both spouses die.
New Mexico is a community property state, meaning that nearly all assets acquired during the marriage are considered to be jointly owned. Joint trusts for marital property make the most sense in the state since they commingle property and avoid any violations of the spouse’s right to unlimited use of and access to community assets.
A spouse can hold separate property, however, for a few reasons. The primary reason would be that they had acquired the asset prior to the beginning of the marriage.
They can also inherit property separately if they receive it as a sole beneficiary (rather than the property being gifted jointly to both spouses). A third way to own separate property is for both spouses to make a binding legal agreement that designates the property as separate.
Separate property originally belonging to each spouse can be placed in a sub-trust within a joint trust. This arrangement can be beneficial when families want to designate certain assets for children (see the section on “Creating an Albuquerque Joint Trust as an A-B Trust” below for more information) or preserve their gift, estate, or generation-skipping tax allotments.
When assets are placed into a trust during the grantor’s lifetime (i.e., a living trust), then they are removed from the grantor’s estate. This arrangement means the assets bypass probate. Bypassing probate keeps the assets from being publicly disclosed.
It can also reduce costs and administrative overhead for the estate.
Perhaps even more importantly, bypassing probate means that an estate plan can immediately jump into action in the wake of a death. The trustee (or contingent trustee) can begin enacting the terms of the trust on day one, preventing any delays that could otherwise be introduced by a lengthy probate procedure.
Should a grantor become medically incapacitated (remaining unconscious for more than 24 hours after an accident, for example), then the trustee already has permission to administer the trust according to its rules.
Usually, a family member or other designated party would need to have a durable financial power of attorney in this situation. If no power of attorney was pre-arranged, then someone may need to get a conservatorship.
While a spouse has free rein to manage jointly owned marital assets in the event that the other spouse is incapacitated (especially in a community property state), a joint trust will provide them (or someone else) with trustee powers over the separate property held in the joint trust.
If the separate property has time-sensitive needs, such as a business needing operational control or transfers for payroll, then the trustee is able to step in immediately to administer the trust assets as needed.
Couples have the option to make their joint trust revocable or irrevocable.
Usually, a joint trust is formed as a revocable trust during the grantors’ lifetimes. This means that the trust can be changed or dissolved at nearly any time, depending on the extent of powers given to the grantor.
The trust still bypasses probate, but the couple does not have to worry about assets irrevocably leaving their ownership.
Irrevocable trusts cannot be terminated by the grantor, and they usually cannot be significantly changed once created, either. As a tradeoff, the connection between the grantor and their property becomes separated, from a legal standpoint.
Because of this distance, the grantors may be able to receive special legal or tax benefits.
For example, an irrevocable joint trust could act as an asset protection trust. These trusts make it very difficult (or impossible) for a creditor to claim assets for a debt owed by one or both grantors.
A joint trust could also be formed as a charitable trust, which allows the grantor to give some of the trust’s asset value to non-charitable beneficiaries while donating the rest to charity. This arrangement could allow the grantors to offset income taxes and potentially defer taxes on future asset income, depending on the way the charitable joint trust was formed.
All joint trusts become irrevocable upon the death of both grantors. Alternatively, when one spouse dies, their separate portion of the joint trust could be “spun off” into its own separate trust — an A-B trust.
An A-B trust is a special type of joint trust. It starts off as a joint trust, usually one that’s revocable. Then, upon the death of one of the spouses, their separate sub-trust portion of the joint trust splits off and becomes its own separate irrevocable trust.
The deceased spouse’s separate irrevocable trust is then referred to as a “B” trust. It may also be called a bypass trust, credit shelter trust, or residuary trust.
The surviving spouse may keep the remainder of the joint trust intact, or they may instead convert it into an “A” trust — sometimes called a marital trust.
Forming separate trusts allows the property in the B trust to remain primarily designated for the deceased spouse’s beneficiaries. These beneficiaries are likely to be the couple’s children or perhaps even the deceased spouse’s children from a previous marriage.
The surviving spouse is allowed to draw a modest income from the B trust — and, sometimes, even access the principal in cases of dire need — but the remainder of the trust is set aside for the future beneficiaries.
An A trust usually permits the surviving spouse to have unlimited access to both the principal and income of the trust. The surviving spouse is then free to designate beneficiaries to receive the remainder of the trust.
These arrangements can serve to preserve assets for future generations, which could be important if a surviving spouse ends up wanting to remarry. In a remarriage situation, family dynamics change, and assets originally intended for the previous marriage’s children (or other beneficiaries) may end up being promised to other beneficiaries.
An irrevocable B trust prevents this, making it a popular choice for some family dynamics.
Typically, a joint trust will be designated as a grantor trust, which means that the grantors count all trust income (interest, capital gains, etc) as their own when reporting taxes each year. This arrangement provides convenience, and grantor trust status can even be utilized with certain irrevocable joint trusts.
However, once a spouse dies, their separate property is effectively promised to the future beneficiary. Even if this transfer does not happen for years to come, it can count as a “completed gift,” possibly triggering a gift tax burden for the trustee.
The solution to this problem is to give the surviving spouse powers of appointment, meaning they have the ability to access the principal of the separate trust at the trustee’s discretion. Their retained usage of the trust property makes the gift no longer count as “complete.”
Finally, one last consideration is that giving a surviving spouse access to an irrevocable trust formed from their deceased spouse’s property could cause the trust’s assets to hurt the surviving spouse’s eligibility for Medicaid long-term services and supports (LTSS). You can discuss this possibility with an experienced Albuquerque joint trust law firm to balance the risk of triggering gift taxes with any concerns you have about future Medicaid eligibility.
A joint trust can offer many advantages, not the least of which is peace of mind. Families that leverage this arrangement have the benefit of being able to make extensive customizations to the trust, especially as it concerns what happens to any separate property after one spouse dies.
Get an idea of how a joint trust could help your family, and learn about all of your various options for creating the optimal joint trust arrangements for you during a no-obligation consultation at New Mexico Financial Law. Schedule your appointment and estate plan review today when you call 505-503-1637 or contact us online.
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