For example, if the surviving spouse desires to, they can amend the Trust, add or remove assets, change future beneficiaries, etc. Only upon the death of the last surviving spouse do any significant changes occur. Once both spouses are dead, the Trust becomes irrevocable.
The death of your spouse will alter the way any assets in the trusts are distributed when you die, if your spouse was listed as the beneficiary. You will also need to choose someone to name as a successor trustee if that role was left to your spouse in your original trust.
What are the cons of joint trusts? Primarily, the lack of flexibility in a joint trust can be a problem, especially if the two spouses don't agree about who should ultimately be a beneficiary or how much they should receive.
Death or Incapacity Turns a Revocable Trust Irrevocable
The nature of the trust itself generally changes under California law when the creator of the trust passes away or becomes legally incapacitated. The trust becomes irrevocable at that point, which essentially means the terms are set in stone.
Once you die, your living trust becomes irrevocable, which means that your wishes are now set in stone. The person you named to be the successor trustee now steps up to take an inventory of the trust assets and eventually hand over property to the beneficiaries named in the trust.
One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
Provided each spouse is comfortable with the other spouse inheriting all of their combined assets, a joint trust can be less complex to set up and administer than separate trusts. Funding the trust is a simple matter of transferring assets into it and avoids the need to divide assets between two separate trusts.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
Co-owners Must be Natural Persons: A natural person is a human being; therefore, legal entities, such as corporations or trusts, cannot own a joint account.
The grantor can set up the trust so the money is distributed directly to the beneficiaries free and clear of limitations. The trustee can transfer real estate to the beneficiary by having a new deed written up or selling the property and giving them the money, writing them a check or giving them cash.
After a trust settlor's death, creditors may have a limited time to make claims against the estate. This period varies by state law but typically ranges from a few months to a year. It's crucial for trustees to be aware of these timelines.
Under typical circumstances, the surviving spouse would become the sole trustee after the death of one spouse.
And, your Joint Revocable Trust allows each spouse the option to revoke or amend it as long as you both are still living. Should you choose to revoke your Trust, any assets would simply be returned the same way they were held before they'd been added to the Trust.
For trusts, the responsible party is a grantor, owner, or trustor. For decedent estates, the responsible party is the executor, administrator, personal representative, or other fiduciary.
Establishing and maintaining a trust can be complex and expensive. Trusts require legal expertise to draft, and ongoing management by a trustee may involve administrative fees. Additionally, some trusts require regular tax filings, adding to the overall cost.
An irrevocable trust offers your assets the most protection from creditors and lawsuits. Assets in an irrevocable trust aren't considered personal property. This means they're not included when the IRS values your estate to determine if taxes are owed.
Shifting assets into a revocable trust won't save estate taxes, but it will provide the opportunity for a basis step-up, helping minimize potential capital gains taxes. Revocable trusts provide opportunities for increased privacy and help clients avoid the expense and publicity of a public probate process.
When one spouse dies, the trust converts from a joint trust to an individual trust. As such, your spouse would have complete decision-making power. Your spouse would be entitled to amend the trust or dissolve it, regardless of whether you would have agreed with the decisions.
Loss of Control
With joint revocable trusts, both spouses must agree on all asset decisions. This requirement can often limit each spouse's control over the shared assets held in the trust, leading to conflicts or disagreements.
Essentially, all parties have to agree to dissolve the trust, or a court order is needed. Special clauses written into an irrevocable trust during its creation may also give the trustee and beneficiaries the ability to revoke the trust.
Your Assets Might Not Be Protected: Another crucial point to note is that not all trusts offer protection from creditors. For instance, in revocable trusts, the assets are not protected from creditors as the grantor retains control of the assets. Potential Tax Burdens: Finally, trusts can carry potential tax burdens.
An irrevocable trust could be a good option for people 65 and older who are Medicaid-eligible because it protects the elderly individual from having to dispose of their assets in order to qualify for Medicaid or nursing home care.
Although a trustee can withdraw money from a trust account for specific things, there are limits. A trustee's fiduciary duty requires them to comply with the grantor's wishes, even if they are well-intentioned. If they violate their fiduciary duties by disregarding a grantor's wishes they could be removed as a trustee.