Most couples, especially those who’ve been married more than once, have property and accounts they consider as ‘mine, yours, and ours’. As such, developing an estate plan becomes important as it helps determine what property and accounts belong to one or the other partner and those that are jointly owned.
More often than not, estate planning for such couples with blended families is a huge undertaking. Fortunately, pour-over joint revocable trusts have proven to be an effective estate planning tool for people in such situations. If you need to set up one today, your California estate planning attorney can help.
What is a Pour-Over Joint Revocable Trust?
Before we define a pour-over joint revocable trust, it is important that we first define what a revocable trust is and how it is used.
A trust is an estate planning tool used to hold accounts and property for the grantor or trustmaker, and it is managed by a trustee. A revocable trust is a type of living trust that can be modified, revoked, or updated if necessary.
It is a great option if you intend to set up a living trust and prefer flexibility or foresee the need to make changes. A revocable trust is contrasted with an irrevocable trust, which does not allow any changes or modifications.
A pour-over joint revocable trust holds the properties and accounts that you and your spouse or partner own jointly. In this case, you and your partner act as co-trustees and manage the trust during your lifetime.
How A Pour Over Joint Revocable Trust Works
For a pour over joint revocable trust to work, you may have to set up three separate trusts; two separate trusts of each of the spouses, and the pour over joint trust. This allows each partner to leave specific instructions for their individually owned accounts and property.
When one of you dies, the jointly owned property and accounts are equally divided, with one-half being distributed (pours over) into the deceased spouse’s individual trust, and the other have into the surviving spouse’s individual trust.
During the lifetime of both spouses, they may decide how to manage their shared property and accounts. Upon the death of one spouse, the pour over joint revocable trust dissolves, and the estate under management is divided into two halfs, with each half pouring over into each spouse’s individual trust.
The Advantages of a Pour-Over Joint Revocable Trust
In addition to the ability to manage jointly owned accounts and property with ease during the lifetime of both spouses, a pour-over joint revocable trust has a myriad of other advantages. These benefits are:
1. It Is Easy To Fund
Since both spouses control the jointly owned accounts and property, it is easy to fund pour over joint trusts.
Although a couple can own a joint account, some financial institutions do not allow two trusts to own the same account. This makes it challenging to plan and manage jointly owned property. For blended families, it can also difficult to settle your estate if both spouses die at the same time.
A pour-over joint revocable trust comes to solve these challenges by allowing you and your partner to open a joint account under a trust.
2. It is Easy to Manage
Joint revocable trusts allow both partners to serve as joint or co-trustees. As such, both spouses retain control over the shared property, making it easier to manage the trust.
3. Avoids lengthy Probate Process
Trust-based estate plans present an opportunity to avoid the often complex and lengthy CA probate process. If you and your partner/spouse die at the same time, assets in your pour-over joint trust will transmit to your separate trust as expressly indicated in the trust documents.
In addition to being easily administered, a trust-based estate plan can also help avoid probate. In such cases, probate is not necessary because your appointed trustees can carry out your trust instructions without the court’s intervention.
However, any part of your estate that’s not included in the trust will be treated as if you died without a will (under intestacy laws)
4. Helps Keep Individual Property Separate
If you and your partner both own separate property and accounts, a pour-over joint revocable trust allows you to keep your separate estates in your individual trusts. Your jointly owned estate is then allocated to the joint pour-over revocable trust.
Such separation allows each spouse to pass their property to their loved ones in the manner they want. This is particularly beneficial for couples in blended families with children from previous marriages or relationships.
5. Keeps the Double Step-Up in Tax Basis
For those who live in a community-property state like California, using a pour-over joint revocable trust enables you and your spouse to keep the community-property nature of your property and accounts.
The step-up in tax basis is a tax benefit that allows the appreciation of assets owned during a marriage to be shielded from capital gains tax if the assets are later sold by the surviving spouse or heirs.
This step-up means that the tax basis of the inherited asset is adjusted to its fair market value on the date of the spouse’s death. As a result, all unrealized capital gains up to the date of their death are effectively wiped out. This eliminates or reduces the capital gains tax burden on the heir.
For married couples, there may be a second step-up in the tax basis when the second spouse dies, and the inherited property has not been sold. A pour-over joint trust arrangement allows a double step-up in tax basis, once when each spouse dies. If you divide the jointly owned property, you may lose this tax benefit.
How A CA Estate Planning Attorney Can Help
If you have a blended family and you and your spouse have separately owned as well as jointly owned accounts and assets, you may want to consider establishing a pour over joint revocable trust. However, the process and legalities of establishing three separate trusts can be complex and tedious. Fortunately, a seasoned California real estate planning lawyer can help.
Estate planning attorneys at Nickbeljajev Law can help you develop an estate plan that ensures that all your assets are distributted to your loved ones according to your wishes. To book your free consultation today, call us at 714-425-5862 or fill out and submit this contact form.
