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Trust Law/Level III · Family trusts/3.3 Couples and blended families/Lesson 6

Joint trusts versus separate trusts

How one shared trust and two separate trusts differ for married couples.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. In California, titling as community property with right of survivorship passes it to the survivor without administration (Civil Code §682.1), with no trust at all. Catch: it plans only for the first death, and either spouse can sever it.
  2. A joint trust holding community property keeps the federal double basis step-up at the first death (IRC §1014(b)(6)). Catch: records must show each asset’s community or separate character, or the split will be costly to prove.
  3. One joint trust means one document and one funding job; FDIC insures trust deposits per owner per beneficiary, up to $1,250,000 per owner per bank. Catch: at the first death the trust often has to be divided, which needs clear records.
  4. Separate trusts suit separate-property states and blended families, keeping each spouse’s assets clear. Catch: two documents must be funded and maintained, and neither shields anything from the settlor’s own creditors while revocable (UTC §505).

MaterialsA list of all assets currently held in joint names or individual titlesThe specific community property statutes for your state (if applicable)A copy of any existing trust agreements or willsRecords of significant gifts or inheritances received during the marriage

Wonder

  1. Does my state treat our home as a shared 50/50 asset or as separate property?
  2. What happens to a joint trust when the first spouse dies?
  3. Can my new partner access assets from my previous marriage held in a separate trust?

Explore

  1. Nine US states are community-property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In them, most property acquired during marriage belongs to both spouses equally, each holding a half interest; property owned before marriage or received by gift or inheritance is generally separate. A joint revocable trust is common in these states because it can hold the couple’s community property together. State laws differ: according to IRS Publication 555, income from most separate property is community income in Idaho, Louisiana, Texas and Wisconsin, but separate in the other five.
  2. Most other states are separate-property, or common-law, states: during marriage, property generally belongs to the spouse whose name is on the title, although on divorce courts divide marital property ‘equitably’ and on death a surviving spouse often has rights. In these states, and in blended families with children from earlier marriages, some couples use two separate trusts so each spouse’s property stays clearly identified. Separate trusts do not protect against creditors while they are revocable, because a revocable trust gives no protection from the settlor’s own creditors; they mainly make ownership clearer.
  3. Five states let couples opt into community property by agreement or through a special trust: Alaska (1998), Tennessee (2010), South Dakota (2016), Kentucky (2020) and Florida (2021). Their rules differ, and some can be used by couples who live elsewhere if a trustee in that state is appointed. Whether assets are community or separate affects how a joint or separate trust works, so knowing each asset’s character comes before choosing a structure. The federal tax treatment of opt-in community property is not fully settled; the next lesson covers it.
  4. When the first spouse dies, many joint revocable trusts divide into two parts: a survivor’s share and a deceased spouse’s share. Depending on the document, the survivor’s share usually stays revocable, so the surviving spouse can still change it, while the deceased spouse’s share often becomes irrevocable, fixing who receives it, for example children from an earlier relationship. Not every joint trust divides this way. If the whole trust stays revocable by the survivor, the survivor may be able to change the entire plan.
  5. Dividing a joint trust at the first death means deciding which assets belonged to which spouse, and that can be hard if separate and joint property were mixed. Tax basis follows that split. Under US federal law (Internal Revenue Code §1014), the deceased spouse’s property generally takes a basis equal to its value at death, and for community property both halves can be adjusted (§1014(b)(6)). With separate trusts, each spouse’s assets are already identified, but the couple has two documents to keep up to date and fund correctly.
  6. A useful first step is an inventory of how each asset is titled: in joint names, in one spouse’s name, or in a trust, and whether it was bought during the marriage or received as a gift or inheritance. In community-property states most property acquired during marriage is community; elsewhere, title and state law decide. The inventory shows how each asset would be treated under a joint trust or two separate trusts. This lesson does not suggest which structure suits any family.

Key facts

  • Nine US states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) are community-property states.
  • Alaska, Tennessee, South Dakota, Kentucky and Florida let couples opt into community property by agreement or through a special trust.
  • In a revocable trust, the settlor can change or end it, but assets remain reachable by the settlor’s own creditors.
  • At the first death, many joint revocable trusts divide into a survivor’s share, often still revocable, and a deceased spouse’s share, often irrevocable; the document decides.
  • Under Internal Revenue Code §1014, the deceased spouse’s property generally takes a basis equal to its value at death; for community property, both halves can be adjusted (§1014(b)(6)).
  • Community property generally excludes property owned before marriage or received by gift or inheritance during marriage.

Exercise nine, six, three, one

9CollectList up to 9 assets or documents (most families have fewer), noting for each how it is titled, when it was acquired, and whether it was bought or received as a gift or inheritance.
6ClusterSort the 9 items into 6 categories: Jointly Titled Assets, Individually Titled Assets, Pre-Marital Assets, Gifts/Inheritances, Existing Trust Provisions, and Legal Constraints (state laws or court orders).
3DistillReduce the 6 clusters to 3 core structural questions: Which assets are legally community property? Which assets remain separate property? How does my current trust structure align with these legal classifications?
1CrystallizeWrite 1 sentence describing whether your current titles and trust documents match how your state classifies your property.

Fact check

Dates, figures and claims checked against the published sources listed below.

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