A Living Trust Lawyer Folsom CA Trusts Discusses Divorce and Revocable Trusts
A revocable trust – also referred to as a living trust – is a trust that allows the creator of the trust, known as a settlor, to place assets in the trust for the benefit of a beneficiary upon the settlor’s death, but has the right to revoke the trust at any time and put the property back into their own estate. Revocable trusts can be positive when someone is trying to avoid probate or keep any irresponsible beneficiaries from wasting trust assets. However, as a Folsom CA living trust lawyer can attest, a revocable trust can make a divorce case very complicated for the beneficiaries and settlors.
Revocable Trusts in Beneficiary’s Divorce
When dealing with a divorce, every state has their own laws to divide the couple’s property. Most states do not allow the courts to divide any property that one party received as a gift or an inheritance. The beneficiary of a revocable trust has no legal rights to the trust principal or income because the settlor is able to revoke the trust at any time. Because of this, there is nothing for the family court to divide during a divorce. A revocable trust is seen as a beneficial way for a settlor to keep an ex-spouse of a beneficiary from receiving any income or trust assets, specifically in states where gifts and inheritances are able to be divided in a divorce.
Revocable Trusts in Settlor’s Divorce
A settlor is always able to revoke the trust and take back any assets. Because of this, those assets are able to be divided by the court if the settlor is going through a divorce. The legal title to the property in the trust may lie with the trustee, the right to take back all of the property and reclaim ownership has an actual value. If the trust was funded by the settlor using separate property while in an area that allows for separate property, the right to revoke the trust would also be viewed as separate. If the settlor is located in a state that allows for inherited or gifted property to be divided, having assets in a revocable trust will not prevent the court from dividing the property.
Income from a Revocable Trust in a Divorce
If a beneficiary receives income from a court, it is common that it can be used to calculate child support depending on the specific guidelines set by the state. Child support guidelines take into consideration all the different sources a parent receives income, which include a revocable trust. The revocable trust income can also be used to determine if the beneficiary needs to pay or receive alimony.
Irrevocable vs. Revocable Trusts
The settlor does not have any power over the trust assets in an irrevocable trust. In irrevocable trusts, the beneficiary has a type of entitlement to the trust property and income. During a divorce, an irrevocable trust will not be viewed as the settlor’s property in their divorce. Because the beneficiary is entitled to receive something from the trust, the beneficiary could lose some or all of their entitlement throughout a divorce case that does not acknowledge separate property.