By Melissa Myers and Michael J. Tucker, May 2016 Issue.
Melissa Myers: I understand that if lawyers in our community are preparing estate planning documents for a same-sex married couples, and if trust planning is involved, they can choose to have a joint trust to hold assets for them jointly.
Michael J. Tucker: Right. I guess you could say, “traditionally,” that is, way back before marriage equality, it really wasn’t workable for an unmarried couple to create a joint trust.
Myers: That’s still true, isn’t it?
Tucker: Yes, primarily because of “red tape” issues, particularly if an unmarried couple creates a joint trust and then one of them dies. The bookkeeping can be difficult.
Myers: Then is it always advisable for a married couple to create a joint trust?
Tucker: No. First, it’s not a foregone conclusion that everyone needs a trust. It depends mainly on the beneficiaries and their circumstances. The trust can preserve the inherited resources and keep them safe from the future financial troubles of the loved ones.
Myers: And by “circumstances,” you refer to the age, financial security, poor health, marital disharmony, and so forth, of the beneficiaries?
Tucker: Indeed. Additionally, the need to create a trust can be triggered by owning real estate in more than one state or country.
Myers: For some unmarried couples, one of them might need a trust and the other wouldn’t.
Tucker: That happens frequently.
Myers: And if a couple created one or two separate trusts before they got married, then what should they consider after the marriage?
Tucker: In my office, we’re making arrangements to update all of those estate plans as soon as we can after we find out about the client’s marriage.
Myers: Why? What’s love got to do with it?
Tucker: Well, because Arizona is a community property state, the character of the couple’s assets and income is affected by the fact that they’re married now. The default inheritance rules are different, and the parameters of which assets are in which person’s estate will change, the longer they remain married to each other.
Myers: Our clients generally are probably not used to thinking about their assets and income in this way.
Tucker: That’s true. Our collective experience hasn’t ventured into community property territory until now.
Myers: If a married couple concludes that one or both of them need a trust, how do you decide between a joint trust or two separate trusts?
Tucker: First, if it’s a couple that’s been together for a while, I would look at how they tend to hold their assets.
Myers: More together in one bucket, or more separate?
Tucker: Also, I would look at who are their respective remainder beneficiaries and how important it is to each of them to provide for those remainder beneficiaries.
Myers: What do you mean?
Tucker: Well, if one spouse wants to give everything to his or her nieces and nephews, and the other spouse wants to give everything to her alma mater, then that is a factor that tends to suggest they’d be better off with separate trusts.
Myers: And isn’t that difficult to sort out if they’re the sort of couple who likes to keep everything in one bucket?
Tucker: Yes, and that’s one reason each of them needs to consider how important it is to him or her that the remainder beneficiaries’ interest be preserved.
Myers: So I’m guessing that a lot of our clients don’t place a lot of importance on who inherits after both of them have “met their maker.”
Tucker: That’s true. There’s no requirement that they care about that.
Myers: Sounds like you have to look at the facts and circumstances of each case.
Tucker: Yes, because no two couples do things in quite the same way.
Editor’s Note: This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. Neither Camelback nor Commonwealth offers tax or legal advice.