The logistics of having two separate living trusts

Q: I notice that you often advise your readers to use a living trust to pass on a home to children. When both husband and wife who own the home jointly each have a trust, what determines whose trust the home is put into? I read your weekly column and have become much better informed as a result. Thank you.

A: Thank you for being a loyal reader of our column. We do recommend to many of our readers that they consider holding title to their home in a living trust. As we’ve explained before, a living trust is a great way to avoid the hassle and cost of probate and allow for the easy transfer of the ownership of a home to children or relatives.

Your question is a very good one because often a married couple will choose to keep their finances separate. Perhaps they have been married before or one person has a credit issue or owns their own business (which may carry more financial risk). You could easily imagine one person comes to the marriage with substantially more assets or will inherit a substantial sum down the line.

Without a living trust, a couple may own a home and if they own the home as joint tenants with rights of survivorship, the survivor would automatically own the entirety of the home upon the death of the co-owner.

If, however, the couple puts their home into a living trust, the trust document would handle the transfer of the home on the death of either of them. Here, too, the transfer would be automatic under the terms of the trust.

Let’s assume the couple each has their own living trust. And, let’s also assume that they own the home in equal shares and that those shares of the property have been correctly transferred into each person’s trust. When one of them dies, that person’s living trust would dictate who gets that person’s share of the home. It could go to the surviving person’s trust, it could stay in the trust for the benefit of the surviving person, or any of a number of different combinations.

A good estate attorney can help the couple decide what might be best for their specific circumstances. If one of the owners is sick, they might want to keep their half ownership of the property separate. In this case, the two trusts would work to keep each of their interests separate but allow the healthy partner to control that person’s trust, but also allow that same person to act as trustee for the partner with the illness.

Why do this? There may be federal income tax reasons to set it up this way, or they may simply want to keep their assets separate while they are alive. Having two trusts can help accomplish these sorts of goals; but if you do this, make sure that each trust contains the legal language that satisfies your intent and desires. You want the trust to show who owns the trust, who controls the trust, who gets to manage the affairs of the trust and who gets the ownership of what is in the trust on the death of the owner of the trust.

If you have more questions and have or want to put your home into a trust, living or otherwise, please make sure you talk to an estate attorney or person that has extensive experience in this area.

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