Living Trust for Married Couples California 2025: Joint vs Separate Trusts

What is a Joint Living Trust?

A joint living trust (also called a shared living trust or family trust) is a single trust created by a married couple together. Both spouses are co-grantors, co-trustees, and typically each other's primary beneficiaries.

How a Joint Living Trust Works

Key characteristics:

• One trust document covering both spouses
• Both spouses are trustees and manage assets together
• All community property goes into the joint trust
• Separate property can be included or excluded
• Both must agree to make changes during lifetime
• When first spouse dies: Trust typically splits into two sub-trusts
• Cost: $500 (online) vs $3,000-$5,000 (attorney)

Who Controls the Joint Trust?

During both spouses' lifetimes:

1. Both spouses serve as co-trustees
2. Either spouse can manage trust assets independently (in most cases)
3. Both spouses should agree on major decisions
4. Either spouse can buy, sell, or transfer trust property

When first spouse dies:

1. Surviving spouse continues as sole trustee
2. Trust may split into Survivor's Trust (revocable) and Decedent's Trust (irrevocable)
3. Surviving spouse manages both sub-trusts per trust terms

When both spouses die:

1. Successor trustee (usually adult child) takes control
2. Assets distributed to final beneficiaries (children, grandchildren, etc.)
3. No probate required

What are Separate Living Trusts?

Separate living trusts means each spouse creates their own individual trust. You have two completely separate trust documents, each spouse is the grantor and trustee of their own trust.

How Separate Living Trusts Work

Key characteristics:

• Two separate trust documents (one per spouse)
• Each spouse is trustee of their own trust only
• Each spouse's separate property goes in their own trust
• Community property is typically divided 50/50 between trusts
• Each spouse controls their own trust independently
• Different beneficiaries allowed (important for blended families)
• Cost: $400 each ($800 total online) vs $4,000-$7,000 (attorney)

Who Uses Separate Trusts?

Separate trusts are common for:

1. Blended families: Children from previous marriages
2. Second marriages: Want assets to go to your children, not spouse's
3. Prenuptial agreements: Often require separate trusts to keep assets separate
4. Significant separate property: Inherited assets, pre-marriage assets
5. Different estate goals: Spouses want different beneficiaries or terms
6. Business ownership: One spouse owns business and wants separate control
7. Asset protection: Keep one spouse's risky assets separate
8. High net worth: Complex estate planning with different tax strategies

How Community Property Works with Separate Trusts

In California, community property is owned 50/50 by both spouses. With separate trusts:

1. Community property is divided: 50% to Husband's trust, 50% to Wife's trust
2. Each trust holds that spouse's half of community property
3. Separate property goes entirely into that spouse's trust
4. Example:
   • Family home (community property): $800,000
   • Husband's trust: $400,000 (50% interest)
   • Wife's trust: $400,000 (50% interest)
   • Wife's inheritance (separate): $200,000 → Wife's trust only

Joint vs Separate Trusts: Side-by-Side Comparison

Feature	Joint Trust	Separate Trusts
Number of Trust Documents	1 (single trust)	2 (one per spouse)
Cost (Online)	$500 total	$400 each ($800 total)
Cost (Attorney)	$3,000-$5,000	$4,000-$7,000
Who Are Trustees?	Both spouses (co-trustees)	Each spouse for their own trust
Community Property	All in one trust together	Divided 50/50 between trusts
Separate Property	Can be included or kept out	Goes into that spouse's trust
Control During Marriage	Shared (both must agree on changes)	Independent (each controls their own)
Beneficiaries	Typically mutual (same for both)	Can be different for each spouse
Administration Complexity	Simple (one trust)	More complex (two trusts)
When First Spouse Dies	Splits into 2 sub-trusts	One trust becomes irrevocable
Step-Up in Basis (CA)	✓ Full step-up on community property	✓ Full step-up on community property
Probate Avoidance	✓ Yes	✓ Yes
Best For	First marriages, shared goals, mutual beneficiaries	Blended families, prenups, different beneficiaries
Recommended For	90% of California couples	10% with special circumstances

California Community Property Rules

Understanding California's community property laws is essential for choosing between joint and separate trusts.

What is Community Property?

Community property = All assets acquired during marriage (with some exceptions). In California:

• Both spouses own 50/50 regardless of whose name is on title
• Includes: Income earned during marriage, property purchased with marital income, retirement accounts, investment gains
• Owned equally even if only one spouse works
• Cannot be separated by putting in one spouse's name only

What is Separate Property?

Separate property = Assets owned individually by one spouse:

• Property owned before marriage
• Gifts received by one spouse (even during marriage)
• Inheritances received by one spouse
• Assets purchased with separate property funds
• Property designated separate in a prenuptial or postnuptial agreement

Community Property Examples

Asset	Community or Separate?	Explanation
Home purchased during marriage	Community property	Even if only one spouse on title
Husband's salary	Community property	Income during marriage is community
Wife's 401(k) from her job	Community property	Earned during marriage
House owned before marriage	Separate property	Acquired before marriage
Wife's inheritance from parents	Separate property	Inheritance belongs to recipient only
Stock portfolio from gift to husband	Separate property	Gifts are separate property
Investment gains on separate property	Depends	Passive gains = separate; Active management = may be community

When to Use a Joint Trust (Recommended for Most Couples)

A joint living trust is the best choice for 90% of married California couples.

Joint Trust is Right For You If:

• ✓ First marriage for both spouses
• ✓ All children are from this marriage (no children from previous relationships)
• ✓ You want everything to go to surviving spouse first, then to children
• ✓ Most assets are community property (acquired during marriage)
• ✓ No prenuptial agreement
• ✓ You agree on beneficiaries and estate planning goals
• ✓ You want simplicity (one trust, easier administration)
• ✓ You want to save money ($500 vs $800)
• ✓ You trust your spouse completely with financial decisions

Advantages of Joint Trust

1. Lower cost: $500 for one trust vs $800 for two
2. Simpler administration: One document instead of two
3. Easier management: All assets in one place
4. Less paperwork: One trust to fund, maintain, amend
5. Unified estate plan: Everything coordinates smoothly
6. Standard for California: Most attorneys and title companies familiar with joint trusts
7. Spousal cooperation: Encourages joint financial planning

When to Use Separate Trusts

Separate trusts are necessary for approximately 10% of married couples with special circumstances.

Separate Trusts Are Right For You If:

• ✓ Blended family: Children from previous marriages
• ✓ Second marriage: You want your assets to go to YOUR children, not spouse's children
• ✓ Prenuptial agreement: Requires keeping assets separate
• ✓ Significant separate property: Large inheritance, pre-marriage assets, family business
• ✓ Different beneficiaries: You want different people to inherit
• ✓ Business ownership: One spouse owns business and needs separate control
• ✓ Asset protection: One spouse in high-risk profession (doctor, real estate, etc.)
• ✓ Different estate planning goals: One wants charity, other wants family
• ✓ Age gap: Significant age difference with different planning horizons
• ✓ Creditor protection: One spouse has significant debt or liability risk

Common Scenarios Requiring Separate Trusts

AB Trust / Bypass Trust Explained

An AB Trust (also called a bypass trust or credit shelter trust) was a popular estate planning tool before 2011. It's much less common now but still relevant for some couples.

What is an AB Trust?

An AB Trust is a joint trust that automatically splits into two sub-trusts when the first spouse dies:

1. Trust A (Survivor's Trust / Marital Trust):
   • Contains surviving spouse's share of assets
   • Remains revocable (can be changed)
   • Surviving spouse has full control
2. Trust B (Decedent's Trust / Bypass Trust):
   • Contains deceased spouse's share of assets
   • Becomes irrevocable (cannot be changed)
   • Designed to use deceased spouse's estate tax exemption
   • Surviving spouse can receive income and sometimes principal
   • Assets bypass surviving spouse's estate (hence "bypass trust")

Why Were AB Trusts Popular?

Before 2011: Estate tax exemption was only $1-2 million and NOT portable between spouses.

Example (2009):

• Estate tax exemption: $3.5 million per person
• Couple has $7 million in assets
• Without AB trust: First spouse dies, everything to survivor. Survivor now has $7M estate. When survivor dies, $3.5M is exempt, $3.5M taxed = $1.4M estate tax
• With AB trust: First spouse's $3.5M goes to Trust B (uses exemption). Survivor's $3.5M goes to Trust A. When survivor dies, Trust A uses survivor's exemption. $0 estate tax (saved $1.4M)

Why AB Trusts Are Less Common Now

Since 2011: Estate tax exemption became "portable" between spouses.

Current situation (2025):

• Estate tax exemption: $13.99 million per person
• Portability: Surviving spouse can use deceased spouse's unused exemption
• Total exemption for married couple: $27.98 million
• Result: 99% of couples don't need AB trust for estate tax reasons

Pros & Cons: Joint Living Trust

Pros & Cons: Separate Living Trusts

Cost Comparison: Joint vs Separate Trusts

Online Living Trust Services

Service	Joint Trust Cost	Separate Trusts Cost	Savings with Joint
Living Trust California	$500	$800 ($400 × 2)	Save $300
Typical Online Service	$400-$600	$800-$1,200	Save $200-$600

Attorney Services

Service Level	Joint Trust Cost	Separate Trusts Cost	Savings with Joint
Basic Attorney Package	$3,000-$4,000	$4,000-$6,000	Save $1,000-$2,000
Comprehensive Package	$4,000-$6,000	$6,000-$9,000	Save $2,000-$3,000
Complex Estate (AB Trust, Tax Planning)	$6,000-$10,000	$8,000-$15,000	Save $2,000-$5,000

What's Included in Each Package

Joint Trust Package ($500 online):

• Joint living trust document
• Pour-over wills (2 - one for each spouse)
• Advance healthcare directives (2)
• Financial powers of attorney (2)
• Trust funding instructions
• Transfer deeds (if needed)

Separate Trusts Package ($800 online = $400 each):

• Two separate living trust documents
• Pour-over wills (2)
• Advance healthcare directives (2)
• Financial powers of attorney (2)
• Trust funding instructions (for both trusts)
• Transfer deeds (if needed)
• Community property agreement (to divide community property 50/50)

Real-Life Scenarios for Married Couples

What Happens When First Spouse Dies?

Joint Living Trust - What Happens

Option 1: Simple Joint Trust (Most Common)

1. First spouse dies
2. Trust becomes irrevocable (cannot be changed)
3. Surviving spouse becomes sole trustee
4. Assets transfer to surviving spouse (if that's what trust says)
5. Surviving spouse controls all assets
6. No probate required
7. When surviving spouse dies: Assets go to final beneficiaries (children) per trust terms

Option 2: AB Trust (Less Common Now)

1. First spouse dies
2. Trust splits into two sub-trusts:
   • Trust A (Survivor's Trust): Surviving spouse's share, remains revocable
   • Trust B (Decedent's Trust): Deceased spouse's share, becomes irrevocable
3. Surviving spouse is trustee of both
4. Trust B assets: Surviving spouse can use income, sometimes principal, but assets ultimately go to children
5. Trust A assets: Surviving spouse has full control, can change beneficiaries
6. No probate required

Separate Living Trusts - What Happens

1. First spouse dies
2. That spouse's trust becomes irrevocable
3. Successor trustee (often surviving spouse or adult child) takes over deceased spouse's trust
4. Assets distributed per deceased spouse's trust terms:
   • Option A: All to surviving spouse
   • Option B: Some to spouse, some to children
   • Option C: All to children (spouse gets nothing from that trust)
5. Surviving spouse's trust: Remains revocable, spouse maintains full control
6. No probate required for either trust

Tax Considerations When First Spouse Dies

Community Property Step-Up in Basis (California):

• Community property gets FULL step-up (both halves, not just deceased's half)
• Applies to both joint and separate trusts
• Huge tax benefit if property appreciated significantly

Example:

• Bought home in 1985 for $150,000
• Husband dies in 2025, home worth $1,500,000
• Original basis: $150,000
• New stepped-up basis: $1,500,000 (full amount, both halves)
• If wife sells for $1,500,000: $0 capital gains tax
• Tax savings: ~$200,000+ (avoided capital gains on $1.35M gain)

Step-Up in Basis: California's Unique Tax Advantage

What is Step-Up in Basis?

Step-up in basis = When you inherit property, the tax basis adjusts to the fair market value at date of death, eliminating capital gains on appreciation during deceased's lifetime.

California Community Property = Double Step-Up

California community property receives a full step-up in basis for BOTH halves when first spouse dies (not just the deceased's half).

This is unique to community property states like California.

Step-Up Examples

Example 1: Community Property in California

• Bought stock in 1990: $50,000
• Husband dies in 2025: Stock worth $500,000
• Without step-up: Basis = $50,000
• With California community property step-up: Basis = $500,000 (FULL amount)
• If wife sells immediately: $0 capital gains tax
• Tax savings: ~$67,500 (15% of $450,000 gain)

Example 2: Separate Property (No Double Step-Up)

• Wife inherited stock from parents: $50,000 (her separate property)
• Wife dies in 2025: Stock worth $500,000
• Step-up: Only wife's portion (100% since it's her separate property)
• New basis: $500,000
• Result: Same step-up, but only because it was 100% her property

Example 3: Joint Tenancy in Non-Community Property State

• Bought stock in joint tenancy: $50,000
• Husband dies in 2025: Stock worth $500,000
• Step-up: Only husband's half = $250,000 (50%)
• New basis: $25,000 (wife's original half) + $250,000 (stepped-up half) = $275,000
• If wife sells for $500,000: Capital gain = $225,000
• Tax owed: ~$33,750

California community property advantage: Full step-up saves $33,750 in this example!

Does Joint vs Separate Trust Affect Step-Up?

NO. The step-up in basis is determined by how property is classified (community vs separate), NOT by trust structure.

Property Type	Joint Trust	Separate Trusts
Community Property	Full step-up (both halves)	Full step-up (both halves)
Separate Property	Step-up only on deceased's separate property	Step-up only on deceased's separate property
Joint Tenancy	Only 50% step-up (avoid joint tenancy!)	Only 50% step-up (avoid joint tenancy!)

Blended Families and Second Marriages

Blended families face unique estate planning challenges. Approximately 40% of marriages in California involve at least one spouse who has been married before.

Common Blended Family Concerns

1. "I want my assets to go to MY children, not my stepchildren"
2. "What if my spouse remarries after I die and cuts out my kids?"
3. "How do I provide for my spouse without disinheriting my children?"
4. "My children and my spouse don't get along"
5. "We both have children from previous marriages - how do we split assets?"

Blended Family Solution: Separate Trusts

For blended families, separate trusts are almost always the right answer.

Why separate trusts work better:

• Each spouse controls their own assets and beneficiaries
• Your assets go to YOUR children, spouse's assets to THEIR children
• No risk of stepchildren inheriting your assets
• Surviving spouse can't change your beneficiaries after you die
• Clear separation prevents family conflict

Blended Family Trust Strategies

Strategy 1: "Yours, Mine, and Ours" Approach

• Husband's Trust:
  • His separate property (pre-marriage assets)
  • His 50% of community property
  • Beneficiaries: His children from first marriage
  • Optional: Spouse can use income during lifetime, then to children
• Wife's Trust:
  • Her separate property
  • Her 50% of community property
  • Beneficiaries: Her children from first marriage
  • Optional: Spouse can use income during lifetime, then to children
• Joint assets (home): Can be split 50/50, or survivor lives there for life then split

Strategy 2: Life Estate for Spouse, Remainder to Children

• When first spouse dies, surviving spouse gets:
  • Right to live in family home for life (life estate)
  • Income from deceased spouse's trust
  • Maybe limited principal access for health/maintenance
• When surviving spouse dies:
  • Assets go to deceased spouse's children (not stepchildren)
  • Protects children's inheritance
  • Provides for surviving spouse during lifetime

Strategy 3: QTIP Trust (Qualified Terminable Interest Property)

• Advanced strategy for larger estates
• Provides income to surviving spouse for life
• Principal protected for deceased spouse's children
• Gets marital deduction for estate tax purposes
• Ensures ultimate beneficiaries are deceased spouse's children

Frequently Asked Questions

1. Should married couples have joint or separate living trusts in California?

90% of married California couples should use a joint living trust if they're in a first marriage with children together and mutual estate planning goals. Use separate trusts for blended families, second marriages, prenups, or different beneficiary wishes.

2. How much does a joint living trust cost in California?

$500 online (with attorney review) or $3,000-$5,000 with an attorney. Separate trusts cost $800 online ($400 each) or $4,000-$7,000 with attorney.

3. Can one spouse change a joint living trust?

During both lifetimes: NO. Both spouses must agree to amend a joint trust. After first spouse dies: Surviving spouse can change their portion (Trust A) but not deceased spouse's portion (Trust B if it splits).

4. What happens to a joint trust when one spouse dies?

Simple joint trust: Becomes irrevocable, surviving spouse usually inherits everything, then goes to children when survivor dies. AB trust: Splits into Trust A (survivor's, revocable) and Trust B (deceased's, irrevocable).

5. Is a joint trust better than separate trusts for married couples?

For most couples: YES. Joint trusts are simpler, cheaper ($500 vs $800), and easier to manage. Separate trusts are better for: blended families, prenups, second marriages, or different beneficiary goals.

6. Can you have separate trusts if married in California?

Yes. Married couples can absolutely have separate trusts. Community property is divided 50/50 between the two trusts, and each spouse's separate property goes into their own trust.

7. How is community property divided with separate trusts?

50/50 split. Each spouse's trust holds their 50% interest in community property. Example: $800K house (community) = $400K in husband's trust + $400K in wife's trust.

8. Do separate trusts protect assets in divorce?

Not really. California divorce law divides community property 50/50 regardless of trust structure. Separate trusts only protect separate property (assets owned before marriage, gifts, inheritances).

9. Which trust structure gives better tax benefits?

Same tax benefits. Both joint and separate trusts provide: probate avoidance, full step-up in basis for community property, estate tax planning (if needed), and privacy. Tax treatment is identical.

10. Can a joint trust have different beneficiaries for each spouse?

Technically yes, but complicated. A joint trust can specify different final beneficiaries for each spouse's share, but this is complex to draft correctly. Separate trusts are clearer if you want different beneficiaries.

11. What is an AB trust for married couples?

An AB trust (bypass trust) is a joint trust that splits into two sub-trusts when first spouse dies: Trust A (survivor's, revocable) and Trust B (deceased's, irrevocable). Used for estate tax planning, but less common now due to $13.99M exemption and portability.

12. Do we need an AB trust in 2025?

NO if your estate is under $27.98 million. Estate tax portability eliminates the need for most couples. YES if: estate over $27.98M, want to lock in current exemption, blended family asset protection, or creditor protection for survivor.

13. Can married couples use separate trusts and still get step-up in basis?

Yes. Full step-up in basis for community property applies regardless of trust structure. As long as property is classified as community property, it gets full step-up when first spouse dies (both halves, not just deceased's half).

14. Should second marriages use joint or separate trusts?

Separate trusts are almost always better for second marriages, especially if there are children from prior marriages. Separate trusts ensure your assets go to YOUR children, not stepchildren.

15. How do prenuptial agreements affect trust choice?

Prenups usually require separate trusts. If your prenup states assets remain separate, you need separate trusts to maintain that separation and comply with prenup terms.

16. Can you convert a joint trust to separate trusts?

Yes. Both spouses can revoke the joint trust and create separate trusts. Commonly done when circumstances change (blended family issues, second marriage, prenup added, or marital problems).

17. Can you convert separate trusts to a joint trust?

Yes. Both spouses can revoke their separate trusts and create a joint trust together. Often done to simplify administration when blended family issues are resolved or all children are now adults.

18. What's better for blended families: joint or separate trusts?

Separate trusts. Blended families need separate trusts to ensure each spouse's assets go to their own children (not stepchildren). Prevents disinheritance and family conflicts.

19. Can surviving spouse change joint trust after first spouse dies?

Depends on trust structure:

• Simple joint trust: Entire trust becomes irrevocable - survivor cannot change beneficiaries
• AB trust: Survivor can change Trust A (their portion) but NOT Trust B (deceased's portion)

20. Do both spouses need to sign to make changes to a joint trust?

Yes. During both lifetimes, both spouses must agree to amend or revoke a joint living trust. This protects both parties from unilateral changes.

Disclaimer: This article provides general information about California living trusts for married couples and should not be considered legal advice. Estate planning needs vary by individual circumstances including marriage status, children from prior relationships, and asset types. For specific guidance on whether a joint or separate trust is right for your situation, consult with a licensed California estate planning attorney. Tax laws, exemption amounts, and community property rules are current as of January 2025 and subject to change.