What Happens To A Joint Revocable Trust When One Spouse Dies?

What Happens To A Joint Revocable Trust When One Spouse Dies - What Is A Joint Revocable Trust

What happens to a joint revocable trust when one spouse dies?

In this article, you’ll learn about: 

  • what happens to a joint revocable trust when one spouse dies
  • how the assets get divided
  • how the trust gets split up when one spouse dies
  • whether a revocable trust becomes irrevocable when one spouse dies
  • can a surviving spouse change the trust
  • how the step-up basis works when the joint revocable trust gets split apart

Let’s dig in. 

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What Happens To A Joint Revocable Trust When One Spouse Dies?

A joint revocable trust is a type of estate planning tool often used by married couples to manage and distribute their assets

It allows the couple to:

  • retain control over their assets during their lifetimes 
  • bypass probate court proceedings after death

Couples do this because probate can be time-consuming and costly.

When one spouse dies, the process that follows can vary depending on the terms of the trust and the state law. 

However, the following steps generally occur:

Read More: Can I Set Up A Trust Without My Spouse?

Division of Trust Assets

Upon the first spouse’s death, the trust assets are typically divided into two separate trusts: 

  • a Survivor’s Trust 
  • a Decedent’s Trust

The division doesn’t require any actual movement of assets; it’s more of an accounting or bookkeeping function.

  • Survivor’s Trust: This part of the trust generally holds the surviving spouse’s share of the joint revocable trust assets. The surviving spouse usually has full control over these assets, meaning they can sell, gift, or spend them as they wish.
  • Decedent’s Trust: Also known as a “bypass” or “credit shelter” trust, this portion of the trust usually contains the deceased spouse’s share of the assets. The surviving spouse may have access to income and sometimes the principal of these assets based on the trust’s terms and applicable state law. This trust becomes irrevocable upon the first spouse’s death.

Read More: Does Your House Have To Be Paid Off To Put It In A Trust

Tax Implications

The death of one spouse can have tax implications

In general, the assets in the decedent’s trust are not subject to estate tax upon the surviving spouse’s death.

This can help preserve more of the estate for the beneficiaries. 

However, the specific tax consequences can vary greatly based on the estate size and the state law.

So it’s usually advised to consult with a tax professional or a trust attorney.

Read More: Do I Need A Trust To Avoid Probate

Trust Administration

The surviving spouse, or another person designated in the trust, often becomes the trustee upon the first spouse’s death. 

This person is responsible for managing the trust assets according to the trust’s terms and state law.

These responsibilities include:

  • distributing assets to beneficiaries
  • making tax decisions
  • keeping accurate records

Read More: What Happens To A House In A Trust After Death?

How A Joint Revocable Trust Gets Split When One Spouse Dies

When one spouse dies, a joint revocable trust splits into two trusts:

  • the Survivor’s Trust 
  • the Decedent’s Trust

The first step is to value all the assets in the trust. 

This means finding out how much everything is worth in current market terms.

Next, the assets get allocated to the two trusts. 

How this split happens depends on:

  • the trust agreement
  • the value of the assets
  • the tax rules

The Decedent’s Trust often gets funded up to the limit of the deceased spouse’s estate tax exemption. 

This is done to use the tax benefits fully and save on estate taxes later. 

Once funded, the Decedent’s Trust can’t be changed; it’s now irrevocable.

The remaining assets go to the Survivor’s Trust. 

The surviving spouse can manage these assets freely, just like before. 

They can also change the terms of the Survivor’s Trust if they want to; it stays revocable.

Lastly, the split of assets is documented for records and tax purposes. 

This is known as “funding” the trusts.

The assets themselves don’t need to be physically divided or moved.

Read More: Who Owns The Property In An Irrevocable Trust

What Is A Joint Revocable Trust?

A joint revocable trust is a type of legal agreement. 

It allows two people, usually spouses, to manage their assets together. 

They can put property like investments, money, or houses into the trust

The trust is “revocable,” which means the couple can change it or cancel it anytime while they’re both alive.

In the trust document, they name themselves as the trustees. 

They control what’s in the trust. 

They can buy or sell property, earn money from it, or spend it as they see fit.

The couple also names people who will get the trust’s assets after they die, known as beneficiaries. 

The trust document states how to split the assets among these beneficiaries.

If one spouse dies, the surviving spouse continues to control the assets. 

The trust becomes “irrevocable” after the first spouse’s death. 

It means it can’t be changed anymore. 

When the surviving spouse dies, the assets go directly to the beneficiaries. 

They avoid the time and expense of probate, a legal process that can happen when a person dies.

Read More: How Long Do You Have To Transfer Property After Death?

Does A Revocable Trust Become Irrevocable When One Spouse Dies?

Yes, a part of a joint revocable trust does become irrevocable when one spouse dies. 

Specifically, the portion of the trust assigned to the deceased spouse, known as the “Decedent’s Trust,” becomes irrevocable. 

This means that no one can change the terms of this trust after the spouse’s death.

On the other hand, the portion of the trust assigned to the surviving spouse, known as the “Survivor’s Trust,” typically remains revocable. 

This means that the surviving spouse can still modify the terms of this part of the trust.

Read More: How To Put House In Trust With Mortgage

Can A Spouse Change A Trust After Death?

Yes, a surviving spouse can change a trust after the death of the other spouse, but this depends on the type of trust.

If it’s a revocable trust, the surviving spouse, often the trustee, can usually make changes. 

This includes changing beneficiaries, distributing assets, or even revoking the trust entirely.

However, let’s say it’s an irrevocable trust, such as a Decedent’s Trust or Bypass Trust set up after the first spouse’s death.

The surviving spouse generally cannot change it. 

The terms, assets, and beneficiaries in an irrevocable trust are usually fixed and cannot be altered after it’s created.

Even when changes are allowed, they must always:

  • follow the instructions laid out in the trust document 
  • comply with state and federal laws

Read More: Does The Beneficiary Own The Trust Property?

Joint Revocable Trust Step-Up In Basis

A Joint Revocable Trust often includes a provision known as a “step-up in basis.” Here’s how it works:

  1. “Basis” is the original value of an asset for tax purposes. It’s usually the purchase price, but it can be adjusted for factors like improvements or depreciation.
  2. When an asset is sold, capital gains tax is paid on the difference between the sale price and the basis. If the basis is low, the tax can be significant.
  3. When a person dies, their assets generally receive a “step-up” in basis. This means the basis is reset to the asset’s fair market value at the date of death.
  4. In a Joint Revocable Trust, when one spouse dies, typically half of the trust assets (the deceased spouse’s share) get a step up in basis to the current market value.
  5. This step-up can reduce or even eliminate the capital gains tax when the surviving spouse sells these assets.
  6. For the surviving spouse’s share, another step-up in basis will typically occur upon their death.

Read More: How Much Do Trusts Cost?

Get A Joint Revocable Trust

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At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

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  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

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