A revocable living trust is one of the most beneficial and useful estate planning tools.
Not only do assets that are held in a trust escape the probate process, but trusts can also be used to 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 how 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 trust refers to a financial arrangement that involves a settlor who creates and funds the trust, a trustee, who manages the trust, and a beneficiary or set of beneficiaries, who receive the assets held in the trust.
When a trust is revocable, it means that the settlor (also called the grantor) can alter or cancel the provisions of the trust at any time while they are still alive. Upon death, property will transfer to beneficiaries.
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Revocable Living Trusts and Divorce
If you or your spouse owns assets in a trust, you are probably wondering whether or not those assets are subject to division at the time that you divorce. This depends, in large part, on whether or not the assets are considered community or separate property. In Texas, community property is subject to division in a manner that is fair, or equitable.
Because gifts and assets given via inheritance are considered to be separate property and are therefore exempt from division, if either you or your spouse were a named beneficiary to a trust and received assets via a trust, these assets will likely be considered separate, and will therefore not be part of your divorce settlement.
While the assets held in a trust may be considered separate in a beneficiary’s divorce, in a settlor’s divorce, the assets will likely be considered marital property because the settlor retains the right to amend or cancel the trust, thereby removing those assets.
As such, in a settlor’s divorce, any assets held in a trust may indeed be considered by the court, and may be subject to equitable division. In many cases, the couple may decide to place the assets in an irrevocable trust instead if the beneficiary is agreed upon, such as a shared child.
Working with a Skilled Divorce Lawyer Is Important
If you’re getting a divorce and either you or your spouse is the beneficiary or the settlor on a revocable living trust, you need to consult with a lawyer who can review your situation, help you to obtain the counsel of a financial professional/forensic accountant, and represent you in settlement talks and negotiations.
At the Law Office of Ben Carrasco PLLC, our team is ready to represent you. Please contact our experienced Austin divorce lawyer today for a consultation and more information relevant to your situation.