If a married couple has the same beneficiaries, i.e., their children, does this mean the children will always have multiple trusts to deal with? The couple may choose to have joint or individual trusts.
Keeping track of the property and accounts owned and invested in each trust can be complicated, especially if the estate is large.
Can marital trusts be consolidated?
Filing tax returns for multiple trusts can also be an administrative nightmare.
Let’s look at why a couple would want to have their own trusts and what it would take to combine them to make management easier for their beneficiaries after they pass.
Why would a married couple want separate trusts?
A married couple may choose to have separate trusts for many reasons, including:
- Asset protection: Each spouse may want to keep their accounts and property separate and protect it in their own trust, which can protect them from creditors, lawsuits, and other claims.
- Privacy: Spouses may want to keep information about an inheritance private. Trusts can help maintain privacy and confidentiality.
- Avoiding disputes: Having separate trusts can help avoid disputes among family members, as the terms of each trust can be specifically stated.
- Flexibility: One spouse can change the terms of their trust without affecting the other spouse’s trust.
- Simplified tax planning: Having separate trusts may simplify tax and estate planning.
Can the trusts be consolidated into one?
If the separate trusts have similar terms and neither the trust agreement nor state law prohibits it, then the trusts can typically be consolidated into one.
Section 417 of the Uniform Trust Code is a provision that deals with the combination and division of trusts.
After notifying any qualified beneficiaries, a trustee may combine two or more trusts into a single trust as long as this does not impair the rights of any beneficiary or adversely affect the ability to achieve the trust’s purposes.
Section 417 of the Uniform Trust Code (UTC) has been adopted in full or in part by thirty-five states and the District of Columbia. A contrary provision in the trust agreement can overrule section 417 of the UTC.
It is essential to know what instructions the trust agreement provides.
The more dissimilar the two trust agreements, the more unlikely consolidation will be an option because it will impair the rights of an individual beneficiary or go against the purposes of one or both trusts.
Combining two similar trusts will allow the trust to be managed more efficiently and economically.
This is a convincing argument that a trustee should combine them if they are very similar.
To reduce trustee fees, reduce tax returns from two filings to one, and allow for more effective investing opportunities.
What are the responsibilities of the trustee when combining two trusts?
The trustee must ensure that the terms of the trust and state law permit combining the trusts before acting.
The trustee is not required to get consent from the beneficiaries before consolidating the trusts but must notify them before doing so.