Personal Finance: Ask the Experts

A: The term "spousal trust" does not have a fixed meaning in the world of estate planning, so I am not sure exactly what type of trust you have. I can think of at least four standard types that benefit the surviving spouse.

Because California is a community property state, many married couples have a joint trust for the benefit of both of them during their lifetimes.

First, you may have a straightforward joint trust that continues to be held for the benefit of the survivor after the death of one spouse, with no subtrusts created and no part of the trust becoming irrevocable. The full trust can be amended by the survivor. Unless the trust document says otherwise, the name of this type trust would stay the same, but you would need to take off the decedent's name as trustee from trust assets. You also want to be sure the trust accounts use the survivor's social security number as the tax ID number, and not the decedent's.

Second, another common planning technique for couples is to use a "disclaimer" trust. This type of trust usually starts with a joint trust. At the death of the first spouse, all of the assets continue to be held for the survivor. However, the survivor has the ability to disclaim, or say "no thanks," to any portion of the assets, which will then go into a new trust called a disclaimer trust. Disclaimer trusts are typically used for estate tax purposes, but they can still provide benefits to the surviving spouse. If the surviving spouse does not disclaim any assets, the comments I make above apply here too. If a disclaimer is made, assets will need to be retitled into the disclaimer trust, and my comments above apply to the remaining assets.

Third, at the death of the first spouse when his or her estate is not taxable, the joint trust often splits into a survivor's trust, which holds the survivor's share of the community property and all of his or her separate property, and a credit (or bypass) trust, which holds the deceased spouse's property. If the trust splits into these subtrusts, then the name of each will change from the name of the original joint trust, and the assets funded into each trust will have to be retitled. As an example, if the Smith Family Trust was created by John and Jane Smith, then upon John's death, it would split into the Smith Survivor's Trust and the Smith Credit (or Bypass) Trust, in the trusts I prepare.

Fourth, for taxable estates, there will often be an additional subtrust formed for tax planning purposes, called a marital trust. In the above example, the new subtrusts would be called the Smith Survivor's Trust, the Smith Credit Trust, and the Smith Marital Trust, in trusts that I prepare. Other names may be used in the trust for these different subtrusts, but this gives you an idea of how it works.

If you have questions about your specific trust after reading it, ask your attorney to explain how the trust works and what happens after the first spouse's death. If it has been a few years since you last reviewed your estate planning documents with your attorney, I would recommend making an appointment to go over your documents. Changes in relevant laws, changes in your relationships, and changes in your assets may make it prudent to update your documents.