Estate Planning Questions: Should You Set Up Multiple Living Trusts?

2. Do you own a home?

If you own a home and would like your beneficiary to use and enjoy your home for their lifetime and then have the property pass to someone else upon their death, you might consider a personal residence trust.

A personal residence trust provides a legal way for the person you are currently sharing your home with to remain there even if their name is not on the deed, but also allows you to pass the property to someone else when that person dies.

This type of trust may be useful in the case of a second marriage in which only one spouse owns the marital home. In this situation, the trust could permit the surviving spouse to remain in the home during the rest of their lifetime, but then the homeowner's children could receive the property upon the spouse's death.

3. Do you have federal and state estate tax or other tax concerns?

While most estates fall under the threshold for estate taxes, if they are a concern, various trust instruments could help. Several types of marital trusts, including AB trusts, can help manage estate tax obligations by shifting or delaying tax burdens until the death of the second spouse.

Wealthy estates may also be interested in generation-skipping trusts. These specially designed trusts avoid taxation in the generation between the decedent and their grandchildren. A generation-skipping transfer tax, however, may apply, so it is imperative to receive sound advice regarding these types of trusts.

The above are just some considerations when deciding on the kind of trust or trusts that would work for your estate. Because estate planning decisions can have far-reaching effects for both you and your loved ones, you should consult with an experienced estate planner who can assist you in choosing the right framework for you.

Should married couples have one trust or two?

One of the most common estate planning decisions married couples face is whether to create a single joint revocable living trust or two separate individual trusts. The right choice depends on your estate size, family structure, state laws, and specific planning goals.

A joint trust often makes sense when you and your spouse have a straightforward estate with the same beneficiaries—typically your shared children. Joint trusts are simpler to set up and manage because you only maintain one trust document, one set of records, and one funding process. Couples in community property states like California, Texas, and Arizona may find joint trusts particularly convenient since most assets are already considered jointly owned.

Separate trusts become more advantageous in several situations. If you have a blended family where each spouse wants to ensure their individual assets ultimately pass to their own children, separate trusts provide clearer boundaries. Couples with large estates may also benefit from separate trusts for tax planning purposes—in states like New York, where estate tax exemption portability doesn't apply between spouses, separate trusts allow each spouse to fully utilize their individual exemption (currently about $7.35 million per person in 2026). Additionally, if asset protection is a concern, separate trusts can help insulate each spouse's assets from the other's potential creditors.

What happens to joint trusts at the first death

When the first spouse dies, a joint trust typically splits into two portions: the deceased spouse's share generally becomes irrevocable, while the surviving spouse's share remains revocable and fully within their control.

Many joint trusts are structured to divide into sub-trusts at this point—commonly called an AB trust arrangement. The "A," or survivor's trust, holds the surviving spouse's assets, which they can continue to manage, spend, or modify. The "B" or bypass trust (also called a credit shelter trust) holds the deceased spouse's assets for the benefit of the surviving spouse while preserving those assets for ultimate beneficiaries, often children. This structure can protect the deceased spouse's wishes and provide estate tax benefits.

With separate trusts, each spouse's trust operates independently from the start. When one spouse dies, their individual trust follows its own terms without affecting the other spouse's trust. This independence can provide clearer administration, but requires coordinating two separate estate plans throughout your lives.

Pros and cons of multiple living trusts

Before you decide whether to establish multiple trusts, it helps to weigh the practical advantages against the potential drawbacks. Your circumstances will determine which factors matter most.

Advantages of multiple trusts include:

• Targeted asset management. Different trusts can be tailored to specific beneficiary needs—a special needs trust operates under different rules than a trust for a financially responsible adult child.
• Enhanced asset protection. Segregating assets into separate trusts can shield them from different risks. For example, keeping rental properties in a separate trust from personal assets may limit liability exposure.
• Tax planning flexibility. Multiple trusts allow you to take advantage of various tax strategies, from preserving each spouse's estate tax exemption to utilizing generation-skipping trusts for wealthy estates.
• Privacy for different purposes. If you have assets you'd prefer to keep separate—perhaps a family business or property from a previous marriage—multiple trusts allow for distinct management and distribution plans.

Disadvantages of multiple trusts include:

• Higher setup costs. Each trust requires its own legal documents, meaning multiple attorney fees and document preparation expenses.
• Increased administrative burden. You'll need to maintain separate records for each trust, track which assets belong where, and potentially coordinate between different trustees.
• Potential beneficiary confusion. Multiple trusts with different terms can create uncertainty or conflict among family members about who receives what and when.
• More complex tax reporting. While revocable trusts are relatively simple to manage during the grantor’s lifetime, they typically become irrevocable at death. At that point, each trust may require its own tax identification number (EIN), separate tax filings, and ongoing administration, increasing accounting and legal costs.

Cost and complexity considerations

The financial and administrative realities of managing multiple trusts deserve careful consideration. Setup costs include attorney fees for drafting each trust document, which can range from a few hundred to several thousand dollars per trust, depending on complexity. If you're creating specialized trusts like a special needs trust or a generation-skipping trust, expect to pay more due to the additional planning and drafting involved.

Ongoing costs add up as well. Each irrevocable trust needs its own EIN and annual tax return, which means accounting and tax preparation fees multiply. If you use professional trustees, you'll pay trustee fees for each trust they manage. Even if family members serve as trustees, the time required to maintain proper records, file tax documents, and manage assets separately represents a real cost.

For simple estates where a single trust would accomplish your goals, multiple trusts may create unnecessary expense and hassle. However, for complex situations—large estates, blended families, or beneficiaries with special needs—the benefits of targeted planning typically justify the added costs. An estate planning attorney can help you determine whether your situation warrants the additional complexity.

FAQs about multiple trusts

Should I set up a separate trust for my home?

If you own a home and want a beneficiary to use it during their lifetime before passing it to someone else, a personal residence trust may be appropriate. This type of trust is particularly useful in second marriages, allowing a surviving spouse to remain in the home while ensuring the property ultimately goes to the homeowner's children from a previous relationship.

Can multiple trusts help with estate tax planning?

Yes, multiple trusts can help manage estate tax obligations. Marital trusts like AB trusts can delay tax burdens until the second spouse's death, while generation-skipping trusts may benefit wealthy estates. Consult an estate planner to determine the best strategy for your situation.

Can multiple trusts own the same property?

Yes, two or more trusts can co-own property together, similar to how individuals can hold property as tenants in common. This arrangement is common when married couples with separate trusts purchase real estate together, or when siblings' trusts inherit and choose to jointly maintain a family property rather than selling it.

When multiple trusts own property together, the deed should clearly specify each trust's ownership percentage and how the title is held. Practical challenges can arise if trustees disagree about property management decisions, maintenance responsibilities, or whether to sell. If one trust wants to sell its share while the other wishes to retain the property, the trusts may need to negotiate a buyout or pursue a partition action.

Because co-ownership between trusts adds complexity, your trust documents should include clear language about property management authority, decision-making processes, and procedures for resolving disputes or unwinding the ownership arrangement.

Michelle Kaminsky, J.D., contributed to this article.