Aug 20, 2021 | The Practical Lawyer

Joint Spousal Trusts in Community Property States: Still the Gold Standard of Estate Planning? - Michaelle D. Rafferty - Presented by ALI CLE

Unlike common law states that have not historically favored the use of a single joint revocable trust for spouses (hereafter referred to as the Joint Spousal Trust or JST), the JST has long been the gold standard estate planning tool of choice in community property states. The JST can simplify a couple’s estate plan into a single plan for both spouses. It can avoid duplicate costs and fees associated with separate plans, potentially avoid a need for separate counsel, and provide remarkable flexibility to plan for the disposition of the estate for benefit of the surviving spouse and generations beyond. The JST can be used in planning for married couples with a modest estate of $100,000 who are merely looking to avoid probate. It can also be used for those married couples with larger estates, even including those with $100 million and beyond in the ultra-high net worth category. The JST can be drafted to address complex asset management, investment management, tax planning, asset protection, spendthrift planning, special needs planning, and dynastic planning for multiple generations. Its flexible nature continues to allow the JST format to morph from decade to decade with each change in the federal estate tax world. While the benefits of the JST can be useful in many different jurisdictions, they are particularly popular in community property states due to how well they fit with the core tenets of community property law.

The broad application of the JST across multiple types of estates, from modest to very wealthy, has led to the development of an entire cottage industry of “trust mills.” These trust mills originally drummed up business through door-to-door solicitations and TV commercials. More recently, the tool of choice has become the internet pop-up ad offering document production software. The trust mills often mass produce one-size-fits-all estate plans for a flat fee, often using fear tactics and promises of low cost to attract customers. While these mass-produced plans certainly are a far cry from a custom-crafted estate plan drafted by a skilled practitioner, the widespread use of these mass-produced trusts has converted the world of probate administration into one of trust administration, and has opened up the world of trust planning to those with more modest estates. Having a trust is no longer a tool limited to the wealthy. In community property states, having a JST is as common as having a car, a house, or an IRA. But just like cars, a JST’s appearance of simplicity can be misleading. And just like cars, JSTs come in different makes and models, with all kinds of bells and whistles. It is not surprising to have a newly married couple client say “We want the same thing you did for our parents. Can you just replace our names in the form for theirs?” Clients are often shocked to find out that a JST that is appropriate for one couple may be entirely inappropriate for another, even though they both reside in a community property state.

The Practical Lawyer

The Practical Lawyer

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