revocable living trust is one of the most beneficial and useful estate planning tools.

Not only do assets held in a trust escape the probate process, but trusts can also be used to keep income, mitigate taxes and protect assets in the event of a divorce.

If you or your spouse holds assets in a revocable living trust and you are thinking about divorce, here’s what you should know about your estate plan and how the division of property laws may be applied to your revocable living trust.

Divorce and property division laws are complicated, especially as they apply to complex assets and financial arrangements – working with an experienced lawyer is recommended.

What Is a Revocable Living Trust?

A revocable trust, also known as a living trust, is a legal entity created to hold and manage assets during the grantor’s lifetime and distribute those assets to the designated beneficiaries upon the grantor’s death. The primary advantage of this type of trust is its flexibility, as the grantor maintains full control over the trust’s assets and can amend, modify, or revoke the trust at any time during their life. This flexibility allows the grantor to adapt the trust to changing circumstances, such as marital assets, adding or removing beneficiaries, adjusting the distribution of assets, or even dissolving the trust entirely.

Revocable trusts offer several benefits, including avoiding probate, which can be time-consuming and expensive. By transferring assets into a revocable trust, the grantor ensures that those assets will bypass the probate system and be distributed directly to the beneficiaries according to the trust agreement’s terms. Additionally, a revocable trust can provide privacy, as trust documents generally do not become public records like a will. However, it’s important to note that a revocable trust does not offer the same level of asset protection or tax benefits as an irrevocable trust, as the trust assets are still considered part of the grantor’s estate for tax and creditor purposes.

To schedule a consultation with an experienced Austin divorce lawyer, please fill out the form below.

To schedule a consultation with an experienced Austin divorce lawyer, please fill out the form below.

Revocable Living Trusts and Divorce

If you or your spouse have assets held in a trust, you may be concerned about how those assets will be treated during the divorce process. The division of trust funds and assets largely depends on whether they are classified as community or separate property. In Texas, community property is divided in a manner that is considered fair or equitable.

Gifts and inherited assets are typically classified as separate property, which means they are exempt from division in a divorce. If either you or your spouse is a named beneficiary of a trust or inheritance and has received assets through that trust, these assets will likely be considered separate property and will not be included in the divorce settlement.

However, if you or your spouse is the settlor of the trust, the assets held within the trust may be considered marital property. This is because the settlor has the right to modify or revoke the trust, effectively controlling the trust’s assets. In such cases, the assets in the trust may be subject to equitable division during the divorce.

Couples may place the assets in an irrevocable trust to avoid complications and ensure that the assets are protected for the benefit of the intended beneficiary, such as a shared child. By doing so, the assets are no longer subject to the settlor’s control, and the trust cannot be easily modified or revoked. As a result, the assets held within the irrevocable trust may be more likely to remain separate property and not be subject to division during the divorce process.

Navigating Asset Division and Trust Agreement

  • Community property: In a divorce, trust assets may be classified as either community or separate property, affecting their division.
  • Trust assets: Assets held in a revocable trust may be subject to division during a divorce, depending on the beneficiary or settlor’s relationship to the trust.
  • Former spouse: After divorce, the trust agreement may need to be updated to remove a former spouse as a beneficiary or trustee.
  • Trust property: Understanding whether trust property is considered marital or separate property is crucial to protect each party’s interests during divorce.
  • Child support: Trust income may be factored into child support calculations, affecting the amount paid by the non-custodial parent.
  • Trust agreement: Reviewing the trust agreement’s terms can help determine the intent behind the trust and how assets should be treated in a divorce.
  • Intent: Establishing the grantor’s intent for the trust assets can influence whether they are considered separate or community property during divorce proceedings.
  • Income: Trust income may be considered part of a spouse’s financial resources, impacting alimony or child support calculations.
  • Divorced: Divorced couples may need to renegotiate the terms of the trust to ensure it reflects their changed circumstances and objectives.
  • Negotiate: In a divorce involving a revocable trust, negotiations may focus on trust assets, their classification, and their distribution between the parties.

Working with a Skilled Divorce Lawyer Is Important

If you are going through a divorce and either you or your spouse is a beneficiary or settlor of a revocable living trust, it is essential to seek legal advice from an attorney who can evaluate your circumstances, guide you in obtaining the expertise of a financial professional or forensic accountant, and represent your interests during settlement discussions, court proceedings, and negotiations.

Our team is prepared to advocate for you at the Law Office of Ben Carrasco PLLC. We invite you to contact our knowledgeable Austin estate planning attorney for a consultation and to obtain further information tailored to your situation. Don’t hesitate to reach out to us and benefit from our extensive experience in handling divorce cases involving revocable living trusts.

About the Author
Ben Carrasco is a highly skilled family law attorney based in Austin, Texas, known for his extensive expertise in family law and business litigation. While his primary focus is family law, Ben brings a wealth of experience in litigating diverse business disputes, ranging from breach of contract and collections to business torts, fraud, and real estate matters. In his family law practice, Ben navigates all aspects of the field, including divorce, child custody, support, property division, and more, offering clients expert guidance throughout the litigation process. His legal journey began in complex commercial litigation, initially with a global law firm and later with a prominent Austin-based firm. However, driven by a desire to make a direct impact on people's lives and embrace the human element of the law, Ben transitioned to family law, a decision that has proven to be deeply rewarding. A proud Austin native with roots in California, Ben completed his undergraduate studies at the University of California, Berkeley, before earning his law degree at Stanford Law School, where he excelled in legal writing and served as an associate editor of the Stanford Law and Policy Review.