A person can have more than one trust. A married person can set up a joint trust with their spouse, to control the couple’s real estate acquired during the marriage, but also set up a separate land trust to control their separate real estate.
Generally speaking, however, most married couples use a single joint trust. The joint trust consists of either entirely joint property or a mixture of the couple’s joint property and separate real estate.
Sometimes, when there are few communal property assets, as in the case of marriages later in life, each spouse may want full independent control over their own assets and keep their own assets separate. A joint bank account can be used to receive any spousal income and to pay for common living expenses. Either spouse can always use their separate real estate for the joint benefit of the couple.
The use of a separate land trust in addition to a joint community land trust occurs when a married person has significant separate assets, such as large inheritances and/or assets acquired before marriage. This is often seen in second marriages where one spouse wants to protect their separate real estate for the inheritance of their own children. Often the two trusts have different distribution patterns upon the death of the settlor (owner of the trust); generally, the separate land trust is more beneficial to the children of the deceased settlor.
Having assets in a separate land trust allows the settlor (owner) to control their assets independently of their spouse. A person who establishes a separate land trust has sole control, while alive and competent, of their assets within the trust. That is, the sole settlor has full control over the management, use and ultimate distribution of its separate assets. Such control can be important for a married person who wishes to protect their separate real estate in a second marriage.
With a joint trust, both spouses, as co-trustees and co-settlors, exercise joint control (management) over the combined assets, as provided for in the terms of the trust. Generally, either spouse acting alone as trustee can manage the community assets of the trust. Both spouses acting together would be required to amend the trust, unless otherwise provided in the trust.
In California, a spouse’s management and control over community property is subject to a fiduciary duty that each spouse owes the other to act in “the highest good faith and in an equitable manner.” A spouse who improperly takes advantage of the other spouse has breached fiduciary duty and may be held liable. The two spouses acting together indicate who inherits the community property in the joint trust when the first spouse and then the second spouse dies. Each controlling spouse who inherits their own real estate upon their own death.
When a married person holding a separate land trust dies, their surviving spouse may or may not have beneficial interests in the deceased spouse’s separate land trust. The surviving spouse only receives the benefits that the deceased spouse left to the survivors in this trust. The surviving spouse, as heir, however, still has the right to request a copy of the separate land trust from the deceased spouse.
The deceased spouse’s separate land trust is responsible for paying the deceased spouse’s separate land debts, debts related to the last illness and administration costs related to the estate of the deceased. Otherwise, these debts are payable by the community property trust of the deceased.
Any payment of the deceased spouse’s debts and expenses by the deceased’s separate land trust can relieve the surviving spouse. The surviving spouse often benefits more from the joint property trust than from the deceased spouse’s separate property trust.
Often, however, the most significant outstanding debts of the deceased spouse are joint property debts, that is, debts acquired during the marriage, and as such are chargeable against the joint property of the couple’s joint trust. .
The foregoing brief discussion of a complex and broad subject is not legal advice. Consult a qualified attorney for legal advice.
Dennis A. Fordham, attorney, is a state bar certified specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, CA. He can be reached at [email protected] and 707-263-3235.