What Happens to a Joint Revocable Living Trust After the First Spouse Dies?

Most married couples who create a joint revocable living trust do so with a shared goal: to protect each other during life and pass assets smoothly to their loved ones after death. But few couples fully understand exactly what happens regarding the trust after the first spouse passes away.

What happens next depends on how the trust is constructed. A joint trust can be written so that several different outcomes could theoretically occur upon the death of the first spouse. In fact, this consideration is of great importance for many couples when doing their estate planning, especially if this is a second marriage, or there are mixed beneficiaries from both sides of the family.

Trust Remains Fully Revocable, and Surviving Spouse Has Full Control

In many cases, the trust carries on as it did before, relatively unchanged, with the surviving spouse having full control of and access to the trust assets. In this instance, the surviving spouse will also retain the ability to add assets to the trust, or withdraw any such assets, and will often continue to hold the authority to amend or revoke the trust in full or in part. Essentially, the surviving spouse has the same level of control that they had, or perhaps even more control, because they no longer are required to consult with their spouse prior to taking action.

Trust Becomes Partially Revocable, Partially Irrevocable, Spouse Retains Some Control

Alternatively, in other instances the trust can become completely irrevocable or unchangeable by the surviving spouse, after the death of the first spouse. This means the trust cannot be amended, changed, or revoked in any manner. Similarly, it is possible to arrange the trust so that the trust could become partially irrevocable, giving the surviving spouse the power to amend only certain provisions of the trust, or alternatively, restricting the surviving spouse from amending certain provisions, such as the beneficiary provisions. This could be very important with mixed families or second marriages, as many couples may not want the surviving spouse cutting out the deceased spouse’s children after the first death.

Trust Splits into Two Sub-Trusts, One for Deceased Spouse, One for Surviving Spouse

Some trusts are designed so that upon the death of the first spouse, the trust may split into two trusts, one for the deceased spouse, and one for the surviving spouse. This can be designed to automatically happen, or instead, the split could be upon the discretion of the surviving spouse. This is often done for estate tax planning, to utilize the “estate tax exemption”, which is the amount a deceased person can leave to their beneficiaries without paying estate tax.

Estate Tax Exemption

However, the estate tax exemption amount has gone up continually, and is now so high that it affects very few people in the United States. At the time of this writing, this estate tax exemption amount is equal to Fifteen Million Dollars ($15,000,000) per person (Thirty Million per couple — $30,000,000). This means that an individual can leave Fifteen Million Dollars to a child or other beneficiary without paying any estate tax (also called “death tax”), but any amounts over that threshold, you will indeed pay death tax. Estate Tax rates are severe — at the time of this writing around Forty Percent (40%) of the amount that is in excess of the exemption amount.

Estate Tax Planning – Two Trusts – Credit Shelter Trust and Survivor’s Trust

Therefore, for couples who have an amount of assets exceeding the estate tax exemption — right now meaning couples with more than $15,000,000 — they can set up a trust that, upon the death of the first spouse, splits into two trusts. Doing so will place a certain amount of the overall estate into the deceased spouse’s trust (also called a “bypass trust”, “credit shelter trust”, or “B trust”) to utilize the estate tax exemption for the deceased spouse. The remainder of the estate will be retained for the surviving spouse in their own trust (also called “survivor’s trust” or “A trust”) to utilize the surviving spouse’s estate tax exemption — someday when they also pass away.

The survivor’s trust typically holds the surviving spouse’s share of the marital assets and remains fully revocable, meaning the surviving spouse can still amend or revoke it. The decedent’s trust, however, generally becomes irrevocable upon the first spouse’s death. This is a critical legal distinction. The assets in the irrevocable portion are now locked under the terms the deceased spouse established, and the surviving spouse’s control over those assets is limited to whatever powers the trust document grants.

Failing to properly identify, separate, and fund these sub-trusts is one of the most common and most costly mistakes families make without legal counsel.

Therefore, it is possible that the death of the first spouse could trigger a series of legal and financial obligations that, if mishandled, can expose the surviving spouse to unnecessary tax liability, legal disputes, or other complications regarding the assets the trust was designed to protect.

Why Trust Administration After the First Spouse Dies Can Be Complex

Trust administration after the first spouse dies is one of the most misunderstood and sometimes mishandled phases of estate planning and trust administration. This is why this phase often requires professional legal guidance.

Many surviving spouses assume that, because the trust avoids probate, there is nothing formal to do when their spouse passes away. That assumption may be wrong, or may be right, depending on how the trust is structured.

Probate Considerations

First of all, there could theoretically still be items that need to go through probate. If there are any assets that were not titled properly into the trust to begin with, and are titled into only the name of the deceased spouse, probate will likely be necessary.

Filing the Deceased Spouse’s Last Will and Testament

Along these same lines, usually the surviving spouse has a Pour Over Will that will need to be admitted into evidence in Probate Court within one year after the date of death of the deceased spouse. A Pour Over Will generally declares that any assets “stuck” in the name of the deceased spouse (with no co-owners, no beneficiary designations on said asset) shall be given to the Trustee of the Trust. Filing the Pour Over Will with the Probate Court will not, in and of itself, start a probate case. Filing the Will merely preserves the surviving spouse’s right to start a probate case if that should become necessary. Any such assets that are stuck in the name of the deceased spouse, if any, will need to be probated according to the Pour Over Will.

Trust Administration Considerations

If the trust is constructed so that it continues to be fully revocable by the surviving spouse, then typically, there may not be as much that needs to be done with regards to the trust after the first spouse dies.

If the trust is constructed so that it is partially revocable, partially irrevocable, upon the death of the first spouse, then similarly, there may not be as much that needs to be done by the surviving spouse.

If the trust is a “splitting trust”, there could possibly be a lot that will need to be done by the surviving spouse. The rules of the trust will need to be followed by the surviving spouse. Depending on how the trust is written, the surviving spouse may need to decide how much of the estate is going into the deceased spouse’s subtrust (bypass trust or credit shelter trust), or otherwise place the amount required by the trust document into said sub-trust. If the surviving spouse is the trustee of the deceased spouse’s trust (which is now irrevocable), this will often trigger reporting and notice requirements that the surviving spouse must undertake, letting the beneficiaries know these facts.

For splitting trusts, trust administration after the first death could also involve retitling assets into the correct sub-trusts, obtaining new tax identification numbers for irrevocable sub-trusts, filing required tax returns, notifying beneficiaries where required by state law, and properly valuing all trust assets as of the date of death. Each of these tasks carries legal requirements and deadlines. Not complying with any such tax and legal requirements could incur penalties, create disputes among beneficiaries, or undermine the very tax protections the trust was built to provide.

This is precisely the kind of work that demands an experienced trust administration attorney. If you are not sure how your trust is designed, it is recommended that you meet with a qualified trust attorney so that you are certain how your trust is constructed, your memory and understanding may be refreshed if need be, or you may ask questions if you have them.

Tax Issues After the First Spouse Dies in a Joint Revocable Trust

One of the primary reasons couples establish a joint revocable living trust is to take advantage of estate tax planning strategies. When the first spouse dies, the allocation of the decedent’s share of assets between sub-trusts can have enormous consequences for federal and state estate taxes down the road.

Additionally, assets in the decedent’s trust typically receive a “stepped-up” cost basis as of the date of death. If assets are not properly appraised and documented at this stage, the surviving spouse — or the ultimate beneficiaries — could face significantly higher capital gains taxes when those assets are eventually sold. The financial stakes of getting this wrong are not hypothetical. They are real, measurable, and might be irreversible.

An attorney who understands spousal rights in estate planning and trust administration can help the surviving spouse preserve every advantage the original trust was designed to provide. As for any tax considerations, it is always recommended that you meet with your accountant or CPA regarding the many tax questions or considerations that might come up.

What Can Go Wrong During Trust Administration After the First Death?

The type of things that can go wrong depend on how the trust is constructed to begin with. For trusts that are fully revocable by the surviving spouse, there is not nearly as much that can go wrong. However, it still makes sense to speak with an attorney to make sure your understanding of the trust is correct, verify that you do have the right to amend or revoke the trust, and investigate any requirements such as admitting a Will and whether there are assets requiring probate.

The most frequent mistakes that we see from surviving spouses are:

• Not understanding if the trust is revocable or irrevocable, or partially both, after the death of a spouse;
• Not knowing how to legally amend the trust, or trying to do it themselves;
• Attempting to amend a trust that is now irrevocable or cannot be legally amended;
• Not admitting the deceased spouse’s Will to probate;
• Not probating assets that require it;
• Failing to split the trust into the required sub-trusts;
• Commingling assets between the survivor’s trust and the decedent’s trust;
• Neglecting to re-title real estate or financial accounts;
• Not seeking professional advice from attorneys or accountants;
• Missing tax filing obligations; and
• Whether purposefully or inadvertently, violating the irrevocable terms set by the deceased spouse.

Any one of these errors can result in unintended tax consequences, family disputes, or legal challenges from beneficiaries who believe the surviving spouse has mismanaged the trust. The common mistakes people make with living trusts are well-documented — and they are far easier to prevent with professional guidance than to fix after the damage is done.

Protect Your Family’s Future With the Right Legal Guidance

The death of a spouse is already one of life’s most difficult experiences. The last thing a surviving spouse needs is the added burden of navigating complex legal and tax obligations alone — especially when so much is at stake. A joint revocable trust after death can require careful, knowledgeable administration to fulfill its intended purpose.

At Piatchek Law Firm, we guide surviving spouses through every phase of trust administration after the first spouse dies — including helping our clients understand the structure and provisions of their trust, answering questions, and providing advice. We also help couples structure their trust in the appropriate manner, so that upon the death of one spouse, their overall goals will be achieved. If you’ve recently lost a spouse, or want to ensure your trust is properly structured for when this time comes, contact us today for a consultation. This is one of those situations where the cost of getting good legal advice is far less expensive than the cost of getting it wrong.