Do you need help establishing a Joint Trust? Experienced Fairfax trust lawyer Rhonda A. Miller can assist you. Contact Rhonda today for a consultation.
Joint Trusts are a great way for spouses to hold assets if your assets are also jointly held. It makes it easy to take care of each other. With a Joint Trust both parties are joint trustees. If one person becomes incapacitated the other one is the sole trustee and continues to take care of everything. After the first person dies the other person serves as the sole trustee.
The idea behind a Joint Trust is to put all joint assets in the trust. Often, married couples have joint assets titled in one spouse’s name. The problem with assets titled like that is if there is more than $50,000.00 in that asset it could go through probate. However, if the assets are put into a Joint Trust, everything will automatically pass to surviving spouse with no retitling and no probate. Really simple.
The alternative to having a Joint Trust is for spouses to have two separate trusts. If all of the assets are joint, then they can be divided up with 50% going into husband’s trust and 50% going into wife’s trust. In the alternative, the attorney will put the assets in each respective spouse’s name into their respective trust. Things can sometimes be very lopsided with more assets being in one trust or the other.
Another choice is to split up the assets and place certain assets into one trust or the other. Sometimes our office can run into a problem if one person has a majority of assets in his or her name. Then you have the majority of the assets in one trust and hardly any in the other. This is not a problem with a Joint Trust. When the first spouse dies there is retitling. The assets that are in the deceased person’s trust must be retitled into the surviving spouse’s trust.
There are some pitfalls for Joint Trusts. Joint Trusts are not appropriate for couples only married for a short time or for couples who keep everything separate. For example, if your only joint asset is a joint bank account you each put money in to pay joint bills. That does not mean a Joint Trust cannot be used by a blended family. There are a lot of blended couples who have been married for a long time and have comingled all of their assets. The real decision maker is how the blended couple wants to leave their assets.
What if you moved to Virginia from a community property state, or you still have property in a community property state? In those cases, you must have a Joint Trust that has community property language in it. Virginia has a state statute that recognizes proceeds from community property states as still having the characteristics of community property. Why that is important is the step-up in basis. At the death of the first spouse a community property asset will have 100% of the capital gains erased. In a common law jurisdiction, at the death of the first spouse, only 50% of the capital gains is erased.
Just because you do not live in a community property state does not mean you cannot take advantage of the 100% step up in basis. Basis is what you pay for assets. Capital gains are the appreciation on the assets. In Virginia and Washington, DC, if an asset is held jointly 50% of the capital gains are erased at the time the first person dies. However, if you own a highly appreciated piece of property, or more than one, it may not be enough to erase 50% of the capital gains. In that case, an Alaskan Community Property Trust is a great option. In a community property state when the first person dies, 100% of the asset gets a step up in basis thus effectively erasing all of the capital gain. This type of planning is available to you here in Fairfax, Virginia.
Rhonda is available to help you establish your Joint Trust and answer your questions. Call 703-442-3890 for an appointment today with a Fairfax trust lawyer or contact us online to learn more about your options.