A married couple is certainly not required to create their estate plans together; however, it is often preferred due to shared assets that must be addressed in each estate plan. One estate planning tool that is frequently used by married couples is a living trust. A living trust can help accomplish a myriad of estate planning goals and objectives while also remaining flexible enough to be easily tailored to the needs of each trust maker. It’s an ideal addition to any estate plan. So, it’s no surprise that many couples choose to include it. With this in mind, what happens to a living trust when one spouse dies?
The Variables Involved
The answer to that question depends on two variables – the type of trust you created and the trust terms. Trusts are first categorized as testamentary or living trusts. A testamentary trust will not take effect until after the maker of the trust (the trustor) dies. A living trust, on the other hand, will take effect during the trustor’s life. Living trusts can then be further divided into revocable or irrevocable living trusts.
In the Case of an Irrevocable Living Trust
An irrevocable living trust is the more permanent option of the two kinds of trusts. As a general rule, irrevocable trusts cannot be modified or revoked by the maker. Therefore, if one spouse dies, the terms of the trust itself will dictate what happens to the trust from that point on. Irrevocable trusts can be ideal because the assets distributed might be excluded from the grantor’s taxable estate. Check out our blog, Do Trusts Save Taxes? to learn more about this process. Irrevocable trusts can also protect assets from legal judgements and creditors of the trustor’s beneficiaries. This might all sound appealing, but it is important that the couple be on the same page when they create an irrevocable living trust. Unlike a revocable living trust, there is no room for change when one spouse dies.
In the Case of a Revocable Living Trust
A revocable living trust is more open for modification. If one spouse dies, the surviving spouse, assuming he/she was the co-maker or co-Trustor of the trust, oftentimes has the authority to change or even revoke the trust. This does not mean that the terms of the trust are unimportant. For example, the terms of the trust might dictate that a percentage of the trust assets are to be paid out to a beneficiary upon the death of one spouse. Keep in mind that the terms of any trust govern how trust assets are handled and managed. Therefore, the terms of the trust in existence at the time of death of one spouse will determine what happens to the trust unless/until the maker of the trust modifies those terms or revokes the trust.
In Conclusion
Whether you are single or a couple, living trusts can be valuable tools to consider when implementing an estate plan. However, it is important that all parties involved have a good understanding of how specific trusts work. If you have additional questions about estate planning and/or living trusts, then contact the experienced Texas estate planning attorneys at The Mendel Law Firm, L.P. by calling 281-759-3213 to schedule your appointment today.
Stephen A. Mendel, Estate Planning Attorney
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