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Is a Shared Trust Right for You?

When you make WillMaker's living trust, you can make an individual trust or a shared trust. An individual trust contains property that only you own, and a shared trust contains property owned by you, your spouse, or co-owned by you and your spouse. If you and your spouse or partner co-own most of your property and you plan to leave most of your property to each other, you'll probably want to make shared trust.

Why Make a Shared Trust

Many couples prefer to make one shared trust, because that way they don't have to divide property they own together. For example, to hold a co-owned house in two separate trusts would require the spouses to sign and record a deed transferring a half interest in the house to each spouse as trustee. And to transfer household furnishings to separate trusts, spouses would have to allocate each item to a trust -- or end up transferring a half interest in a couch to separate trusts.

There is another advantage to making a shared trust if you and your spouse want to leave significant trust property to each other. With a shared trust, property left by one grantor to the survivor stays in the living trust when the first grantor dies; no transfer is necessary. With separate trusts, property left to the survivor must usually be transferred first from the trust to the survivor, and then (to avoid probate) to the survivor's living trust.

If you and your spouse or partner own most of your property together but each of you has some separate property, a shared trust is fine. You can transfer all of it to the trust, and each spouse can name beneficiaries (including each other) to receive his or her separate property.

Why Make an Individual Trust

If, however, you and your spouse own most of your property separately, you may want to make individual trusts. Most couples in this situation fit one of these profiles:

  • You and your spouse signed an agreement stating that each spouse's earnings and other income are separate, and you have kept your property separate.
  • You are recently married and own little or no property together.
  • You each own mostly separate property acquired before your marriage (or by gift or inheritance), which you conscientiously keep from being mixed. Couples who marry later in life and no longer work often fit into this category.

Another reason to make separate trusts is if each of you wants to keep sole control over your own trust property. With a shared trust, each of you has authority over all trust property while both are alive.

Common Law vs. Community Property States

Your decision may be affected by the marital property laws of your state. In common law states, the general rule is that spouses share everything 50-50, so it usually makes sense to make one shared trust, especially if you have been married for a number of years. All property earned by either spouse during the marriage, regardless of whose name is on the title slip, is community property. Each spouse owns a one-half interest in it. Property acquired by one spouse by gift or inheritance, however, or before marriage, is not community property; it is the separate property of that spouse. Federal Social Security benefits and certain retirement plan benefits are also separate, not community, property.

EXAMPLE: Rob and Cecile live in Nevada, a community property state. They have been married for 20 years. Except for some bonds that Cecile inherited from her parents, virtually all their valuable property -- house, stocks, car -- is owned together. The money they brought to the marriage in separate bank accounts has long since been mixed with community property, making it community property, too. Rob and Cecile decide to make a shared living trust.

In a non-community property state, it's usually fairly easy for spouses to keep track of who owns what. The spouse whose name is on the title document (deed, brokerage account paper or title slip, for example) owns it. If you own most of your property together, you'll probably want to make a shared trust; if you own things separately, consider individual trusts.

EXAMPLE: Howard and Louisa live in Indiana. Both have grown children from prior marriages. When they married, they moved into Howard's house. They both have their own bank accounts and investments, and one joint checking account, which they own as joint tenants with right of survivorship.

Each makes an individual living trust. Howard, who dies first, leaves his house to Louisa, but most of his other property is left to his children. The funds in the checking account are not included in his living trust but pass to Louisa, also without probate, because the account was held in joint tenancy. Howard's other accounts go to his children, under the pay-on-death arrangement he has with the bank.

If you're not sure whether you should make individual trusts or a shared trust, see a lawyer for advice.