Divorce & Living Trusts2017-12-14T20:08:34+00:00

Living Trust Issues If You Are Planning or Getting A Divorce

Note: This discussion assumes as a husband and wife you established a joint married living trust.

Remember that you are still legally married during the years before the divorce decree:

There is usually a long period of time, often years, between the beginning (contemplation) of the separation / divorce process and the time you are legally divorced (signing by the judge of final marital dissolution decree). Until such time, whether you like it or not, you are still considered legally married to each other in the eyes of the law. Worse yet, absent concrete steps this means if one of you passes away during this time, the spouse that you are divorcing is still in a potentially strong legal position to inherit your estate. The objective is to implement legal safeguards designed to help insure each spouse’s estate is distributed according to present intent in case either spouse dies during the divorce process (usually to the children instead of the spouse).

Revoking a Trust Could Mean Your Spouse Will Inherit Your Estate Via Intestate Succession Laws:

It is again very important to understand that, even though you separate and file for divorce, you are generally still legally married to each other until the judge signs the final dissolution papers. With that in mind, let’s say for example that you revoke your trust after you begin the divorce process (as is often the advice of many attorneys). The first consequence of revoking your trust is that you are left without an estate plan. If you happen to die without an estate plan the consequences are this: Your estate will go through probate and be distributed according to the laws of intestate succession. Who might you guess is usually first in line to inherit according to the laws of intestate succession? That’s right – your spouse. Remember you are still legally married to each other until the judge finalizes the divorce and it is your spouse that will most likely inherit all (community property) or a good portion (separate property) of your estate if you die without an estate plan. To say the least, this usually does not reflect the intent of most divorcing spouses.

Roadblocks To Establishing and Funding A New Trust:

To begin with, we cannot separately represent either one of you in the preparation of new separate estate plans until the divorce is final. (We are sorry, but that is just mandated by The Rules of Professional Conduct for lawyers.)

As to establishing separate living trusts as your new estate plan, though theoretically possible, there are many considerations that usually make it an impractical notion until the divorce is final. Among them is the fact that any final resolution of respective asset split and property ownership does not occur until the final decree (which leaves ownership in the disputed grey area where both spouses are still co-owners until signed agreement or court decree). There are also transfer restrictions and notice requirements imposed by law on both spouses until the the divorce is final. This can make funding a new trust quite impractical during such time (with unfunded assets potentially being subject to probate). This impracticality tends to limit each spouse to executing a new Will (but even that must be done carefully). Not only does disinheriting a spouse require proper documentation there are often other matters that need careful consideration and discussion.

Fact is, in the end, many spouses (at the advice of their family law attorneys) dutifully revoke their trust and yet never get around to executing a new estate plan. The problem and danger with this is that it means intestacy law will govern in the meantime. Furthermore, even if you do happen to contemporaneously execute a new Will this is not the best of alternatives if you wish to keep your estate out of a potential probate. So — what to do?

Mutual Cooperation in Winding Down a Married Trust May Well Be In Both Spouses’ Interests and Can Allow For a Functioning Mutually Acceptable Estate Plan Until Divorce:

We realize that spousal cooperation and communication in the midst of a divorce, separation, or disagreement can sometimes be very difficult and emotional (often involving lawyers with heavily contested issues). Although each spouse should always seek competent, separate legal counsel and advice, within that context it is also important to understand that, from an estate planning perspective, strong mutual cooperation may well be in the best interests of both spouses.

However, with your consent (and according to the terms of the conflict agreement that every married couple signs) we can prepare a modification of your joint married trust with your mutual agreement as to the new inheritance and trustee provisions that conform to your overall wishes. The most common mutual amendment for a divorcing couple is that both spouses modify the trust to specify that the children inherit or receive their share and all beneficial interest instead of the spouse. While there may be a great deal that divorcing spouses don’t agree on, this is usually one modification to both spouses’ liking. Though this may seem like a somewhat unorthodox approach, it may in fact be the best possible strategy you can employ until your divorce is final.Explore the possibility your divorce attorneys (or each other if you are not using attorneys).

Cooperating and Mutually Amending Your Trust Could Be The Best Alternative:

While the idea of mutually amending your trust with a divorcing spouse may seem a bit awkward it may in fact potentially be the best interim alternative and a far less awkward notion than the prospect of your divorcing spouse inheriting part or all of your estate.

Generally, the idea is to mutually modify the trust to change beneficiary designations from your spouse to the beneficiaries you now wish to inherit (in light of the divorce). For most couples this means simply changing the beneficiary from your spouse to your children if you die. (Some couples also want to change to an independent trustee as the successor trustee instead of the surviving spouse.)

Simply put, this strategy can often simultaneously accomplish most of your estate planning goals until your divorce is final. If you die during the divorce process it will generally keep your estate out of probate, protect your children, allow your estate to be distributed according to each of your new wishes (until the divorce is final), and will function to hold the combined assets until division and ownership is fully resolved. In fact, one is hard pressed to think of any other alternative that will simultaneously meet all of these and even some other goals.

You Do Not Need To Sign Together:

As a final note you should be aware that you only need to agree to what you want to do with the trust to implement this alternative. Yes, you both need to agree and sign but it should be emphasized that you do not have to sign together at the same time. In fact you can even work through your attorneys to iron this out and complete this matter. The choice is yours. In closing, once the divorce is final, if you haven’t done so already you both need to immediately separately execute a new estate plan and generally this should be a living trust if you want to avoid probate.