Joint vs. Individual Trusts in Separate and Community Property States

This CLE/CPE course will provide estate planners with a thorough and practical guide to overcoming the challenges of utilizing joint and individual trusts in separate property/community property states. The panel will outline when to use joint marital trusts instead of individual trusts and vice versa. The panel will offer drafting language to maximize the benefits and minimize the risks of using JMTs and individual trusts in separate and community property states.

For some families, choosing between a joint or individual trust is a critical component that significantly impacts gift and income taxes. If both spouses want the surviving spouse to have full control over the assets in the trust and have the same beneficiaries of the residual estate, then a joint trust may be ideal. Individual trusts may be the best option for couples with certain assets, separate finances, prenuptial agreements, or second marriages. Estate planners must carefully consider applicable state laws and potential tax implications when deciding on the best structure.

Estate planning counsel should anticipate and avoid tax pitfalls when structuring joint trusts in separate property states. Where the spouses contribute unequal amounts, funding the trust may trigger gift tax if the trust instrument does not correctly assign the power to revoke or withdraw assets.

There are also income tax risks in structuring a joint trust in a separate property state. Estate planning counsel must identify hidden tax risks and manage them by carefully drafting the trust document.

Listen as our experienced panel explains how to structure joint and individual trusts in a separate property and community property state.