Not certain what a joint trust is? Really want to know how a joint trust can save you and also your spouse a ton of cash and pass on your assets without a huge tax penalty? Here are some facts about this important financial option--and whether it can help you and your family.

What it is?

In a nutshell, a joint trust, also commonly referred to as a living trust is a contract or trust document that is usually drawn up by a married couple in order to enable them to manage their assets and benefit their families, while they are alive and more so after the death of one or the other.

Such a trust can be established by any couple. In most cases, it generally proves to be much more beneficial to married couples to enter such agreements. (Laws in different states of the United States differ with respect to the eligibility requirements for such setups.) It is therefore prudent and in most cases essential to consult a lawyer for the actual drawing up of the document according to the laws in your particular state.

What You must Do

Specific requirements are necessary for these forms of trusts.

Firstly, both individuals setting up the trust must do so of their own volition. Secondly, the contract must have nominated beneficiaries who are to benefit from the establishment of the trust. Thirdly, property must be transferred to the trust. Lastly, the property which is transferred to the trust must be owned either independently or mutually by the creators of the trust, who're also called grantors.

How It Works

A trustee manages the couple's assets and the grantors usually select an individual or an institution as trustees. The grantors usually name themselves as the beneficiaries of the joint trust and sometimes also nominate their kids. They also elect themselves usually as co-trustees or "successor trustees".

Generally a joint trust has a clause which makes it revocable in the event of the spouse's death. Such a trust is known as a Joint Revocable Living Trust.

Pros and Cons

Advantages: A joint trust ensures more privacy than a will. Having such a trust also ensures ease of management, with respect to having to manage separate assets in individual trusts. When a beneficiary of a joint trust expires, there's hardly any cost incurred in legal problems and transfer of property.

In comparison, probate not just takes longer (three to six months or more), but the legal expenses also mount up to nearly 10 percent of the person's assets.

Disadvantages: Tax expense is one of the biggest burdens of a joint trust, since it causes the property to be viewed as a single whole and thereby subject to higher tax rates. An additional possible disadvantage is that, in the case of a divorce, separating the property becomes a huge ordeal financially and legally.

Unlike other trusts, a trust of this kind is so complicated it's important to consult an attorney before embarking on this type of financial protection.

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