Divorce and Trusts
Nobody gets married planning to divorce down the road. But sadly, nearly half of all marriages do end in divorce. As estate planning lawyers with 40 years of experience, Phelps LaClair knows what happens to a trust in a divorce.
Wills and trusts are different, of course, even though both are drafted to describe what will happen to a person’s assets after they pass away. With a will that goes to probate court, different states handle an ex-spouse’s claims differently. Some states consider the divorced spouse as already deceased, so that spouse is unable to collect on a claim. Other states give a divorced spouse the right to challenge the will. Arizona has a law that disqualifies the ex-spouse as a potential beneficiary when the divorce is final.
If a revocable trust has been established, it may be either revoked and rewritten, or updated. With a revocable trust formed during a marriage, the married couple maintains control of the assets included in the trust. They can make changes to the trust as part of a divorce agreement, or they can dissolve the trust and divide the assets. In the case where a trust is dissolved, the assets must be listed and applicable taxes paid as income.
When an irrevocable trust is created, it cannot be changed. All of the assets have already been transferred to the trust, and the named trustee maintains control. Most often, an irrevocable trust is set up to benefit the couple’s children. As long as neither ex-spouse has access to the trust, the trust will function as intended. If either spouse does have access to the trust, the court may instruct that the trust is closed to both of them, so that only the named beneficiaries can collect from the trust.
As a second generation firm, Phelps LaClair thoroughly understands the complexities of estate planning, including what happens to a trust in a divorce. Wisdom will take into account the possibility that circumstances can lead to divorce. Failing to plan is planning to fail. It is true in marriage, and it’s true with estates. We plan to succeed and we follow the plan. Let us help you with all of your estate planning needs. We’ll help you create a plan that works for your life and protects your hard-earned assets through thick and thin.
Images used under creative commons license (Commerical Use) 04/22/2019 Photo by Nicole De Khors from Burst