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HOW A JOINT POUR-OVER TRUST CAN SIMPLIFY YOUR ESTATE PLANNING

Jennifer Short Feb. 15, 2022

Many married couples think about their accounts and property as “yours, mine, and ours. This is especially true when

  • One or both spouses are getting remarried

  • One or both spouses are bringing significant amounts of assets into the marriage

  • The couple married late in life

Deciding what should happen to all these accounts and property at death can be a big undertaking. A pour-over trust can help ease some of the stress that may come from making such decisions.

WHAT IS A JOINT POUR-OVER TRUST?

A joint pour-over trust holds you and your spouse’s joint property. You can create the joint trust together and name yourselves as the current trustees. When the first of you passes away, half of the joint trust’s accounts and property are distributed (pour over) to the deceased spouse’s separate trust, and the other half to the survivor’s separate trust.

DOES THIS MEAN THAT WE WILL NEED THREE TRUSTS?

For the estate plan to work as intended, you may indeed need three trusts. Jointly owned property goes into your joint pour-over trust, and separately owned property goes into your own separate trust. This allows you to provide separate instructions for handling joint and separate property. Once the first of you dies and the accounts and property are distributed to their respective trusts, there is nothing more for the joint pour-over trust to do. Thus, there will likely not be a long, ongoing administration after the first death.

WHAT ARE SOME BENEFITS OF A JOINT POUR-OVER TRUST?

1. Ease in funding the trust. A joint pour-over trust is easy to fund because both of you control it.

2. Ease of administration. The joint trust allows for ease of lifetime administration because both of you keep control over your joint property.

3. Probate avoidance. Avoiding probate is a popular reason for considering a trust-based plan. If you and your spouse pass away simultaneously, your loved ones can avoid probate because the trust instructions will dictate what happens to your accounts and property. Your chosen trustee will carry out the instructions without court supervision.

4. Keeping things separate. By allocating your joint property to the joint pour-over trust, and your separate accounts and property to your individual trusts, your wishes remain clear. Such an arrangement can be helpful if you or your spouse have children from a previous relationship whom only one of you wants to provide for at death. Make sure to have an attorney review any prior estate plan before creating a trust.

5. Double step-up in tax basis. In a community property state, placing your joint accounts and property in a joint pour-over trust may allow for the double step-up in tax basis (once at each of your deaths). If you were to divide ownership of these accounts or property between two separate trusts, you may risk losing the double step-up in basis.

It's important to have a clear estate plan in place when you and your spouse have separate and joint assets. Working together, we can assess what you own and how you own it. We can also discuss your wishes about what should happen to those accounts and property at your death. Call us today at 614-389-9711 so we can craft a plan that works best for you, your spouse, and the rest of your loved ones.