Our assets are in both names (home, condo(investment), savings and checking accounts). I have an inherited annuity(husband beneficiary). My husband owns a commercial truck, the title is just in his name. Should we have a joint or individual trust? I have read that with joint trusts there could be capital gains and gift taxes, whereas with individual trusts, there aren’t those tax implications. Which one should we have?
Terry Says: I’m assuming you’re talking about Revocable Living Trusts — a plan to deal with your estate after the death or incapacitation of one or both of you. So you need to work with an attorney who specializes in estate planning in your state of residence. Since you already share most of your assets, you’ll probably need only one RLT, and you can be co-trustees. Remember, creating the trust does no good unless you rename all your assets inside the trust. That does not create any tax consequences. Your lawyer will do it for you. Instead, for example, of having your house titled as John Smith and Mary Smith, joint tenants with rights of survivorship, your house will be retitled in the name of the “Smith Family Revocable Living Trust.” Any asset of significance should be retitled — and you’ll need a copy of the first page of your trust to show the bank, brokerage firm, etc in making the name change.
But not everything gets titled in the trust. Your personal car, or your daily checking account could remain outside the trust. So your lawyer will create a “pour-over will” for each of you saying that any assets in your individual names will pour into the trust at the death of either one of you.
When creating the trust you specify what is to happen with your assets at the death of either or both of you. That is where you specify that your wedding ring goes to your daughter, and your pearls go to your daughter-in-law etc. You will specify a successor trustee (adult son or daughter, or lawyer) in case you die in an accident together.
Now, WHY have a RLT? There are several reasons — and none of them have to do with taxes. First, if one of you becomes incapacitated the other trustee can take over and make decisions without going to court to petition for that right. Imagine a spouse who had a stroke, and cannot move or speak. If your home is in joint name, he wouldn’t be in a position to consent to a sale. But since it’s in the trust, you can handle that. as co-trustee. Also, at death, assets inside the trust do not go through the expensive and time-consuming process of probate, which changes title to the assets. Your assets are already titled in the name of the trust, and will be distributed according to the terms you created when you made the trust.
Remember, a spouse can leave EVERYTHING to a surviving spouse — with NO tax consequences! At the death of the second spouse, under current law only amounts above $5.43 million in combined estate and gifted assets are subject to Federal estate taxes. (Your state may also tax inheritances.) But leaving everything to your spouse may not be the best plan, which is why you want to consult an estate planning attorney and set up a RLT.