Can Separate Trusts Be Combined?
Nov. 22, 2022
When creating an estate plan, many married couples want to include a trust as one of their documents. Trusts can offer many benefits, including avoiding probate. When incorporating a revocable living trust into an estate plan, spouses have the option to create either a single joint trust or two separate individual trusts. Many couples choose to create separate trusts for a variety of reasons, including:
The desire to leave property to different beneficiaries
Greater asset protection from the financial risks of one spouse
The capacity to keep jointly owned property separate from individually owned property
The need for greater flexibility, or assurance, when filing taxes after the loss of the first spouse
Can Separate Trusts Have the Same Trustee?
Whatever the reason for creating separate trusts, oftentimes both trusts will have the same trustee (usually the couple’s child). So, the question becomes, will the work of two trusts become too much for the trustee to manage? Keeping track of the property owned and investing in each trust, along with filing tax returns for each trust, can be an administrative headache. The good news is that these trusts can usually be joined after death. In general, similar trusts can be combined into a single entity, if the trust agreements and state law allow it.
Should Separate Trust be Combined?
Check out section 417 of the Uniform Trust Code (UTC). It allows a trustee to merge two or more trusts after giving notice to qualified beneficiaries, “if the result does not impair rights of any beneficiary or adversely affect achievement of the purposes of the trust”. This law has been adopted in whole, or in part, by 35 states and the District of Columbia at the time of this writing. Always keep in mind that anything stated in the trust agreement may override the provisions of this law. Thus, it is important to read and understand the trust agreement.
While the UTC does not require that the trust terms must be identical to be combined, the more the documents differ, the more likely that the merger would harm a beneficiary’s rights. Therefore, lowering the odds of approval. However, there should be few issues if the the trusts to be joined are the separate trusts of a married couple, which are likely to contain identical or very similar provisions.
Some might argue that the trustee must join the trusts if they have the same provisions. This might allow a more efficient and affordable administration of the trust. There are several benefits to combining trusts, including:
reduced trustee fees,
the ability to file one trust tax return instead of many returns, and
more effective investing opportunities.
According to the UTC, the trustee may combine trusts without the beneficiaries' or a court's approval. However, it does call for the trustee to inform beneficiaries prior to doing so. Although the law does not require the consent of the benefiting parties or a court, it may be a good idea for the trustee to get consent anyway.
Hiring an Ohio Trust Attorney
If you and your spouse have decided to create separate trusts as part of your estate plan, there's good news! Your children may not need to deal with multiple trusts after you both die. The trustee may combine trusts if the terms of the trusts and state law allow it. By doing so, your family takes advantage of economies in trust administration. Wondering if it's possible to merge your separate trusts for the sake of your beneficiaries? Give us a call at 614-389-9711. Our experienced trust attorneys in Dublin, Ohio would be happy to assist you.