We’re often asked by new clients whether they should put jointly held property into a revocable trust (a.k.a. living trust).
The answer is often yes. However, what ends up going into that trust depends on the structure by which the assets are held jointly by the client, as well as the structure of the trust we’re drafting.
The simplest method to put jointly held property into a living trust is to create a joint trust for the owners. In such a trust, at least two individuals are beneficiaries of that trust and carry rights to the assets it contains. If one dies, the property stays inside the trust for the survivor’s benefit.
Sometimes, it’s unnecessary to put jointly held property into a trust. But, we’ll get to the reasons why in a bit. First, let’s break down a couple scenarios of how and why you would put jointly held property into a trust.
Personal Interest, Separate Trust
If you have jointly owned property and a separate trust, then you may put your interest into the trust. For example, when you hold a property as a joint tenant with another person and you want to protect your rights to it, you could put your ownership interest into your trust. This won’t affect the other person’s ownership rights, but if you died, then whatever interest you had in the property will be handled by your separate trust instead of going through probate court.
Community Property, Joint Trust
If you are married and you live in a state with community property laws (California, Arizona, Texas, Washington, Nevada, New Mexico, Idaho and Wisconsin), then a joint trust could make very good sense. In those states, property acquired by a couple is typically considered jointly owned rather than separately owned. Putting jointly acquired assets into a second trust matches the reality of what your ownership would be. In non-community property states, each spouse may have separate assets if they wish.
When Would a Joint Trust Not Be Necessary?
The biggest advantage of a trust is your ability to keep property held in the trust out of probate. However, if assets are owned jointly, they usually stay out of probate anyway because ownership rights pass on to the survivor upon the first person’s death. For example, if you and a parent owned a piece of property jointly, then it should not have to go through probate court when your parent dies. In addition, transfers of jointly owned property between spouses also usually avoids probate. And so, if these examples are the case for you, a trust may not be necessary for jointly held assets. However, if you decide not to put jointly held assets into a trust, you need to have a consultation on the possible tax consequences of such a decision.
Having jointly owned assets certainly doesn’t mean you would not need any estate planning documents beyond a simple will or even a basic revocable trust. We recommend a thorough examination of your assets – jointly held or not – so that we can recommend the best planning and tax protection strategies to accomplish what you want to happen to your assets upon incapacity or death.