The Benefits Of A Trust For You And Your Children After A Divorce

The end of a marriage can be emotionally and financially devastating. Many unknowns can plague the former spouses and their children. Financial security is often a major concern for divorcing spouses, and one of many questions they may ask is what effect the divorce will have on the trust. For some, a family trust may have existed prior to the marriage to provide for one of the spouses and the couple’s children. For others, the couple may have set up irrevocable trusts to provide for each other and their children in the event of one spouse’s death. When questions arise about the benefits of a trust after a divorce, consider reaching out to an experienced Florida estate planning attorney from Loughlin Law, P.A. Call (561) 677-8384 to learn more about your options.

How Does a Family Trust Work in Florida?

Many family trusts are set up originally as revocable living trusts. A revocable living trust is a legal document that gives one person or entity, the trustee, power to make decisions about the assets that are held in the trust. The grantor, who may be the first trustee, decides who will be the trustee, successor trustee, and beneficiaries of the trust and then funds the trust with his or her assets. For a family trust, the beneficiaries are specifically the grantor’s family members, such as a spouse, children, and grandchildren.

Many people choose revocable living trusts because they are able to maintain a certain amount of control while they are living. The grantor can generally still use the assets within the trust, including continuing to live in the house or receiving earnings from investments. According to the American Bar Association, this option is especially helpful if the grantor becomes incapacitated. In such cases, the co-trustee or successor trustee distributes from the trust for the benefit of the grantor and his or her family. The grantor of a revocable living trust may add or remove assets and make other changes to the trust during his or her lifetime. However, once the grantor dies, the trust becomes irrevocable, protecting the assets within it from the public record of probate court and from most estate and gift taxes.

Is an Irrevocable Trust Safe From Divorce?

Family trusts that are irrevocable trusts are often set up to protect and pass on generational wealth. These trusts remain protected during divorce settlements because of their unchangeable nature. When calculating the income of the spouses, the court may consider the assets and distributions of the trust, but the trust itself should not be affected by the divorce process. The trust’s beneficiaries, distributions, and general terms should remain unchanged after a divorce is final. This is true whether a family member or one spouse created the irrevocable trust prior to the marriage or both spouses created the trust during their marriage.

The assets within the trust are considered separate property or a gift to the beneficiary. The trust offers wealth protection for future generations. However, if any marital assets were used to fund the trust, it may be subject to consideration in the divorce. Additionally, if one spouse created the trust using marital property without first obtaining consent from the other spouse, a judge may order the grantor spouse to reimburse the other spouse.

How Does a Trust Affect Divorce?

The type of trust matters in a divorce settlement. Assets used to fund a revocable trust that was created during the marriage might be considered marital assets and be subject to division. Assets used to fund an irrevocable trust created before the marriage, and even during the marriage, will typically have protection from division, unless they were marital assets.

Can a Spouse Hide Assets in a Trust?

Some divorcing spouses may be tempted to hide assets to prevent their spouse from benefiting financially. If one spouse creates a trust to prevent the other spouse from having access to certain assets, the judge may order the spouse who hid the assets to reimburse the other spouse for that loss.

Can a Trust Protect Assets From Divorce in Florida?

In some jurisdictions, irrevocable self-settled trusts can be used to protect assets from former spouses. They typically allow the grantor to be both a beneficiary and the trustee. However, in Florida, the same person cannot be both the sole trustee and the sole beneficiary.

What Are the Benefits of a Trust in a Divorce?

The benefits of a trust in a divorce include asset protection, privacy by avoiding probate, separate property, and reduced tax liabilities. Trusts that survive the divorce process continue to protect their included assets from a future probate process and provide for their named beneficiaries. Those beneficiaries may be one of the spouses and the couple’s children.

During the divorce process, the assets that were used to fund the trust are usually excluded from calculations for equitable division of assets, alimony, and spousal support. As long as separate property has not converted to marital property, which can happen in certain circumstances according to The Florida Bar, a trust that is considered separate property should remain unharmed after a divorce.

What Are the Disadvantages of a Trust?

Trusts have several attractive advantages for people of various income brackets. However, some of the disadvantages include the costs involved in initially setting up the trust. A trust is a complex legal document with many aspects to consider. A skilled estate planning attorney from Loughlin Law, P.A., may be able to help determine the right fit for your unique needs and goals.

Other disadvantages include the need to fund the trust by moving the chosen assets into the trust and letting go of control over those assets. The grantor of a trust still needs to have a Last Will and Testament (will), which must go through probate after his or her death. Additionally, when setting up a trust that pays distributions of the trust income, the beneficiary must pay income taxes on those payments.

Contact an Experienced Florida Estate Planning Attorney Today

When making estate planning decisions that include setting up a trust, it is important to evaluate the potential benefits in relation to your overall estate goals. Choosing the most appropriate type of trust and the assets to include in the trust can be complex. Just as complex, as well as emotionally straining, can be choosing a trust with the necessary clauses that will allow the trust to survive after a divorce. If you have questions about the benefits of a trust in relation to your goals, consider contacting a knowledgeable estate planning attorney with Loughlin Law, P.A., by calling (561) 677-8384 to schedule a consultation today.