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What Happens to a Living Trust in Divorce? 

Bochnewich Law Offices July 17, 2024

Divorce is a complicated and emotionally charged process, and a living trust adds another layer of difficulty. Understanding what happens to a living trust during a divorce is critical for effective estate planning.  

At Bochnewich Law Offices, we're here to answer your questions about how living trusts and their status during divorce. 

What Are Living Trusts? 

A living trust is a legal document that places your assets into a trust for your benefit during your lifetime. You can manage these assets as the trustee, and upon your death, the assets are transferred to your beneficiaries without going through probate. This provides both privacy and efficiency in handling your estate. 

Living trusts protect your assets and ensure that your estate is managed according to your wishes. They offer an added layer of security and can help streamline the distribution process for your loved ones. They also offer tax benefits and protect your estate from creditors. 

How Does Divorce Affect a Living Trust? 

When you go through a divorce, one of the first questions that arises is what happens to your living trust. Typically, your assets are reevaluated, and decisions are made regarding the division of property. The terms of your living trust may need to be amended to reflect your new marital status and asset allocation. 

This could involve removing your ex-spouse as a beneficiary or co-trustee. You may also need to update the distribution plan to ensure that your assets go to your intended beneficiaries. 

The Role of the Trustee in Divorce 

If you and your spouse are co-trustees, the divorce will likely necessitate changes in how the trust is managed. One party may need to step down as trustee, or a new trustee may need to be appointed. These changes must be promptly addressed to avoid conflicts and ensure smooth trust management. 

Protecting Beneficiaries 

One of the primary concerns during a divorce is protecting the interests of your beneficiaries. This may involve updating the trust to ensure that your children or other loved ones receive their intended inheritance. Legal guidance can help you make these adjustments while complying with California laws. 

Tax Implications 

Divorce can have significant tax implications for your living trust. Changes in asset ownership and trust amendments may affect your tax obligations. A tax professional can help you understand the potential impact and make informed decisions. 

Common Mistakes to Avoid 

When dealing with a living trust in a divorce, it's important to avoid common mistakes that can complicate the process. These include failing to update the trust, not disclosing all assets, and neglecting to consult with legal and financial professionals. Being proactive and informed can help you avoid these pitfalls. 

Seeking Legal Advice 

Given the complications of managing a living trust during a divorce, seeking professional advice is critical. Legal and financial experts can provide the knowledge and support you need to make informed decisions and protect your interests. 

Living Trusts and Divorce in California 

In California, several laws govern how living trusts are handled during a divorce. Understanding these regulations is essential for effective estate planning during a divorce. 

In California, which is a community property state, any assets acquired during the marriage are typically considered community property and are divided equally. However, assets acquired before marriage or through inheritance or gift are considered separate property. The classification of assets can significantly impact the division of a living trust during a divorce. 

California requires full disclosure of all assets, including those in a trust, during the divorce proceedings. Any changes to the trust must comply with state laws to be legally binding.  

A living trust in California can help maintain privacy during a divorce, as assets held in the trust avoid public probate proceedings. However, during the divorce process, the court will closely scrutinize all assets, including those in a trust, to ensure a fair division.  

While a living trust offers flexibility and control during a marriage, its terms may need significant changes once divorce proceedings commence. California law mandates that both parties fully disclose all assets, including those held in a living trust, to prevent hidden assets during the division process. Any changes must comply with California family law to maintain the trust's validity and enforceability post-divorce. 

Consult a Southern California Attorney 

Our firm at Bochnewich Law Offices have a stellar reputation for delivering excellent results and satisfying clients. We offer free initial consultations and work collaboratively with clients and referring attorneys to resolve issues without court intervention. We take a hands-on approach to address all concerns and respect the personal and emotional aspects of family planning. 

If you need help with your living trust or any other estate planning matters in Riverside County, Los Angeles County, San Bernardino County, Orange County, San Diego County, or anywhere in Southern California, reach out to us at Bochnewich Law Offices