Not sure what a joint trust is? Really want to know how a joint trust can save you and your spouse a ton of money and pass on your assets without a massive tax penalty? Here are some facts about this essential financial option--and whether it can help you and your family members.

What it is?

In a nutshell, a joint trust, also commonly known as a living trust is a contract or trust document that is generally drawn up by a married couple in order to help them to manage their assets and benefit their families, while they are alive and more so right after the death of one or the other.

Such a trust could be established by any couple. Generally in most cases, it generally proves to be more beneficial to married couples to enter such agreements. (Laws in different states of the USA differ with respect to the eligibility requirements for such setups.) It's therefore prudent and in most cases important to consult legal counsel for the actual drawing up of the document based on the laws in your particular state.

What You must Do

Certain requirements are necessary for these kinds of trusts.

Firstly, both people setting up the trust must do so of their own volition. Secondly, the contract need to have nominated beneficiaries who're to benefit from the establishment of the trust. Thirdly, property need to be transferred to the trust. Lastly, the property which is transferred to the trust must be owned either individually or mutually by the creators of the trust, who're also known as grantors.

The way it works

A trustee manages the couple's assets as well as the grantors generally choose an individual or an institution as trustees. The grantors usually name themselves as the beneficiaries of the joint trust and sometimes also nominate their children. They also elect themselves usually as co-trustees or "successor trustees".

Usually a joint trust has a clause that makes it revocable in the event of the spouse's death. Such a trust is known as a Joint Revocable Living Trust.

Advantages and disadvantages

Benefits: A joint trust ensures much more privacy than a will. Having such a trust also ensures ease of management, with respect to having to manage separate assets in individual trusts. When a beneficiary of a joint trust expires, there is hardly any cost incurred in legal problems and transfer of property.

In comparison, probate not only takes longer (3 to 6 months or more), but the legal expenses also mount up to almost 10 % of the person's assets.

Disadvantages: Tax expense is one of the main burdens of a joint trust, since it causes the property to be viewed as a single whole and thereby subject to greater tax rates. An additional potential disadvantage is that, in the case of a divorce, splitting up the property becomes a huge ordeal financially and legally.

Unlike other trusts, a trust of this type is so complex it is important to consult an attorney before embarking on this form of financial protection.

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