Can I Put Jointly Held Property in a Living Trust?

By Jane Meggitt

Generally, you place assets into a living trust for your management, use and benefit during your lifetime, with those assets passing to beneficiaries after your death, without going through the probate process. These assets are titled in the name of the trust, typically with you as the trustee. While you might put jointly-held property into a living trust for a variety of reasons, the overriding purpose should not be to avoid probate, since jointly held property normally passes directly to the joint owner at death without going through probate.

Jointly-Owned Property

If you hold property jointly with another person, depending on how the property is titled, it should automatically pass to that individual after your death. This would include bank accounts titled as joint owners with right of survivorship or real estate owned jointly or as tenants in common. Although jointly-owned property passes automatically, if co-owners die simultaneously, such as spouses in an accident, that asset may be subject to probate if not held in a trust.

Living Trusts

The most common type of living trust, the revocable living trust, may be changed or terminated at any time by the individual creating it, known as the grantor. Assets placed in the trust, such as a house, stocks and bonds or bank accounts, belong to the trust and must be re-titled as such. However, by naming yourself as trustee, you have the benefit of these assets during your lifetime. The trust also names beneficiaries who receive the assets after your death. Proceeds from the trust during your lifetime are reported on your personal income tax return. You can have your attorney draft a trust agreement or use a trust kit from an online document provider.

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Joint Living Trusts

Rather than creating individual trusts, spouses may create joint living trusts, with both husband and wife acting as grantors and trustees. Both jointly and individually-owned assets may be placed in such trusts. Each person may revoke the trust during his or her lifetime. If either person revokes, any property in the trust goes back to the way it was titled before being placed in the trust.

Other Exceptions to Probate

For many people, a major reason for establishing a living trust is to avoid property going through the probate process after their death. However, property going through probate is generally titled solely in the decedent's name. You may also arrange for transfer-on-death provisions for beneficiaries for brokerage and mutual fund accounts or stock shares, or payable-on-death provisions for bank accounts. These assets then pass directly to the beneficiaries, bypassing probate. Certain assets, such as IRAs, 401(k)s and life insurance policies, do not go through probate, as you name the beneficiaries for these instruments.

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Should a 401(k) Be Put Into a Living Trust?


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What If an Heir Dies?

The impact of an heir’s death on the probate process depends a great deal on whether he is also a beneficiary. An heir is a relative entitled to inherit from the decedent by law -- heirs inherit when the decedent dies without a will. Beneficiaries are those individuals named in a decedent’s will to receive his property. They may or may not be related to him. An individual can be both an heir and a beneficiary when he's bequeathed property in a will and is also related to the decedent, so he would have stood to inherit even if the decedent had not left a will.

How to Void or Cancel a Living Trust

A living trust can be revocable or irrevocable. A revocable trust can be canceled during the lifetime of the person who created the trust, while an irrevocable trust usually cannot be canceled. There is more than one way to eliminate a revocable trust. One way, and perhaps the most straightforward, is to revoke it by way of a signed document. Another way is to remove all the property held by the trust because a trust that does not hold property is not a trust.

How to Set Up a Joint Revocable Trust

A joint revocable trust is a type of living trust where you with your spouse, or you with another party, assign property to a trust to be distributed after you die under the guidance of a trustee. Spouses typically use joint revocable trusts to avoid probate and create a living trust for both spouses in a single document. As the name suggests, a revocable trust can be revoked by one of the creators at any time. Joint revocable trusts will have different requirements and advantages in every state and as such, it's advisable to contact an estate attorney or a document preparation service before setting up a joint revocable trust. If you do decide to create a joint revocable trust, the allotted assets in the trust will pass through your trust at your time of death rather than through your will. Prior to proceeding, you will need to familiarize yourself with some terminology associated with trust funds. The person creating the trust is known as the grantor or trustor, while a trustee is the organization or individual in charge of administering the trust. A beneficiary is the individual who will receive the proceeds of the trust, while residuary refers to any property remaining in the trust after the beneficiary has received the benefits of the trust.

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