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Revocable trusts are a key component of many estate plans. Among other things, these trusts allow you to minimize probate expenses, keep your financial affairs private and provide for the management of your assets in the event you become incapacitated. They also offer flexibility: You’re free to amend the terms of the trust or even revoke it altogether at any time.

For married couples, one important decision is whether to use a joint trust or separate trusts. The right choice depends on their financial and family circumstances, applicable state law and other factors, so couples should discuss their options with us. Here are some factors to consider.

Ease of administration

Provided each spouse is comfortable with the other spouse inheriting all of their combined assets, a joint trust can be less complex to set up and administer than separate trusts. Funding the trust is a simple matter of transferring assets into it and avoids the need to divide assets between two separate trusts.

In addition, during their lifetimes, each spouse has equal control over the trust’s assets, which can make it simpler to manage and to conduct transactions involving the assets. On the other hand, for spouses who aren’t comfortable sharing control of their combined assets, separate trusts may be the way to go.

Another potential advantage of joint trusts is that they simplify real estate transactions. For example, if a couple’s home is held in a joint trust, it’s easy for a surviving spouse to sell the home. However, if the home is titled in the trust of the deceased spouse or is split between their separate trusts (as tenants in common), selling the home may be more challenging.

Family circumstances

If one or both spouses want to ensure that a portion of their assets go to someone other than their surviving spouse, separate trusts may be a better option. For example, if a spouse has children from a previous marriage, a separate trust makes it possible to provide income to the surviving spouse for life, while preserving the remaining funds for his or her children.

Separate trusts may also be preferable if one or both spouses are uncomfortable handing over complete control of their combined assets to the other spouse. For example, if one of them isn’t good at managing money, the other spouse may prefer to use a separate trust and appoint an independent trustee to manage the trust assets and control distributions.

Asset protection

If shielding assets from creditors is a concern, separate trusts usually offer greater protection. With a joint trust, if a creditor obtains a judgment against one spouse, all of the trust assets may be at risk. A spouse’s separate trust is generally protected from the other spouse’s creditors.

Also, when one spouse dies, his or her trust becomes irrevocable, making it more difficult for creditors of either spouse to reach the trust assets. Keep in mind that the degree of asset protection a trust provides depends on the type of debt involved, applicable state law, the existence of a prenuptial agreement and other factors.

Tax planning

For most couples today, federal gift and estate taxes aren’t a concern. This is because they enjoy a combined gift and estate tax exemption of more than $27 million in 2024 (scheduled to drop to around $14 million in 2026).

However, if a couple’s wealth exceeds the exemption amount, or if they live in a state where an estate or inheritance tax kicks in at lower asset levels, separate trusts offer greater opportunities to avoid or minimize these taxes. For example, some states have exemption amounts as low as $1 million or $2 million. In these states, separate trusts can be used to make the most of each spouse’s exemption amount and minimize exposure to death taxes.

It's also important to consider income tax. When one spouse dies, his or her trust becomes irrevocable. That means filing tax returns for the trust each year and, to the extent trust income is accumulated in the trust, paying tax at significantly higher trust tax rates. (See “The high tax cost of irrevocable trusts” below).

A joint trust remains revocable after the first spouse’s death (it doesn’t become irrevocable until both spouses have passed). In this case, income is taxed to the surviving spouse at his or her individual tax rate.

Review the pros and cons

Joint and separate trusts each have advantages and disadvantages. We can explain the pros and cons and help determine which strategy is right for you.

The high tax cost of irrevocable trusts

One disadvantage of separate revocable trusts is that when one spouse dies, his or her trust becomes irrevocable, potentially triggering significantly higher income taxes. Irrevocable trusts (other than grantor trusts, which aren’t relevant here) are subject to a high rate of tax on their undistributed income.

In 2024, for example, the federal income tax brackets for trusts are as follows:

In contrast, the 24%, 35% and 37% tax brackets for individuals (other than joint filers, for whom the amounts are higher) don’t kick in until taxable income reaches $100,525, $243,725 and $609,350, respectively. So, unless the trust distributes all or most of its income each year, a significant portion of its earnings may be eroded by income taxes.

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