A living trust is a means by which property is held for the benefit of one or more persons, other than the person who created the trust. A living trust is a popular alternative to leaving property to an intended beneficiary though a will, which requires probate. A joint living trust exists when two or more persons create a single trust and transfer some or all of their property into the trust. The persons who create the trust are known as the grantors, while the person who manages the trust is known as the trustee. In the case of a joint trust, both grantors are typically trustees. Although a joint living trust may have significant advantages in some situations, there can be some disadvantages to creating it. Consider using the services of an online document preparation company to create your will or trust.
Administration of Substantial Debts
If one or more of the persons who create a joint living trust have substantial and complex debt obligations, problems can arise when the debtor dies and those debts become due. Joint living trust documents commonly include language that provides for the payment of debts from the decedent’s trust assets. Before the trust beneficiary can receive the trust property, the trustee must pay those debts. If the trustee does not accurately total the amount of debt and then distributes the trust property to the intended beneficiaries, the debtor’s creditors could look to the trust beneficiaries years later for payment of the debts. If the debtor instead creates a will, which is subject to probate, those creditors only have a specific period of time under state law in which to make their claims. The court will also insure the debts are totaled correctly and paid off before distributing the decedent’s assets to the beneficiaries.
Problems can arise if two or more persons want to create a joint trust, but want to keep their individual wishes private from the other trust creators. For example, you could have a situation whereby three sisters decide to create a joint trust, but two of the three sisters do not get along with their brother. If the third sister wants to leave some of her property to her brother, she may worry that her two sisters will be upset with her if she does so, as they will know about the gift. As an alternative to fully disclosing the gift to her sisters in a joint trust, that sister could instead create her own living trust and not disclose its terms to her two sisters.
Joint living trusts commonly name the other grantor as the successor trustee. If a person is considering creating a joint living trust, but is concerned about the other grantor acting as a successor trustee and not following the instructions of the trust document, a living trust might not be a good choice. Generally, living trusts are not administered by a probate court. This lack of court supervision may lead to a successor trustee mismanaging the trust property, whether intentionally or by accident. Unlike with a living trust, a will is administered under the supervision of the court and the debts and property are finalized by way of a court order.
Cost and Alternatives
A living trust is usually more complex to create than a will; it requires the person(s) creating the trust to transfer property into the trust. Because of this increased complexity, living trusts are generally more expensive to create than a will. A living trust, however, usually avoids the time and expense of administering a will. Although a will is one alternative to creating a joint living trust, there may be other alternatives. Holding title to real estate as joint tenants with the person to whom you intend to leave the property upon your death will automatically transfer your interest in the property to the other joint tenant without the necessity of a will or trust. Many assets, such as bank accounts, brokerage accounts, retirement accounts and life insurance policies, allow the account or policyholder to name a beneficiary to receive the proceeds of the asset upon the account holder’s death automatically.