When two lovebirds walk down the aisle, never in their wildest dreams do they imagine that their future marriage could culminate in divorce. It may seem like a logical conclusion, with approximately 9 divorces per 1000 individuals in the state of New York, but most of us refuse to see that side of the coin until it is too late. In his divorce settlement with ex-wife Mackenzie, Jeff Bezos gave up $38 billion in shares and other assets. Your estate may not be like Uncle Scrooge’s, but you shouldn’t be losing anything due to ill-planning.
Some far-thinkers choose to sign an official pre-nuptial agreement prior to the wedding, which establishes how assets are supposed to be divided in such an unfortunate scenario. But most refuse to taint their wedding memories with attorney visits and unromantic documentations.
If you are in the process of divorce, you may be wondering how your living trust in New York will be divided. Here’s what you need to know.
A Beneficiary’s Divorce
From the beneficiary’s perspective, having assets in a living trust can prove to be useful in a divorce settlement, especially an unpleasant one. If your ex-spouse is trying to get more than their fair share, your trust can protect the assets you haven’t yet inherited. By virtue of a living trust, the grantor transfers property rights to a trustee who takes care of the trust on your behalf.
According to New York State law, an ex-spouse does not have the right to acquire your inheritance or third-party gifts at the time of divorce. If you are the beneficiary of a living trust in New York, it means that the granter has the power to revoke or modify the trust terms any time they wish. It follows naturally since the assets contained in a living trust are not the beneficiary’s to use until either the grantor dies, they are not subject to asset division.
A Granter’s Divorce
For a grantor, living trusts are not especially useful in the case of divorce if they have been set up after marriage. Any trust you set up after you say ‘I do’ has to be considered Marital Property and is liable to undergo asset division in the case of divorce. Plus, a revocable trust by definition can be changed or rescinded; and so all the assets contained within it can and will be divided by a court in the grantor’s divorce settlement.
Even though the trustee holds power over the assets contained in a living trust, the grantor has an undeniable claim over it since everything can be essentially repossessed. If you want to completely hide your assets without giving your ex-partner a share, you have to set up a trust before signing those marriage documents. In such a case, the assets will belong to you only.
When setting up a living trust in New York, we recommend that you find the right estate planning attorney for guidance. Depending on your concerns, they can help you create a tailored trust document to suit your future needs.
Income from Living Trusts
If the assets in your living trust are income-generating entities, the court is likely to take this into account. Any money that you earn from the trust will be included in your gross income when deciding on the child support stipend if you have kids. Plus, your income from a revocable trust can also determine whether you will pay or receive alimony from your ex.
Living Trusts for Child Support
On your lawyer’s advice, you can also consider setting up a new living trust for alimony and child support. Placing the assets and monthly payments in a trust can make the inheritance process much simpler for your heirs when you pass away. Based on some federal tax reforms, it may be possible to avail yourself of some tax advantages.
How can I make the most out of my estate plan?
You plan for incapacity and the guardianship of your children if you pass away, but you barely ever plan for divorce. When speaking to an attorney about your estate plan, make sure that you are keeping every possibility in mind to prevent future problems. If you are fully prepared beforehand, you will already be familiar with the documents, knowing what needs to be changed at what point.
If the two of you are joint owners of a trust, your now-ex-spouse might not respect your wishes the same way after you pass. The logical thing to do in such a scenario is to update the document with new instructions. If you are someone who plans ahead, consider setting up a trust as a single person before going through with the wedding. This way, any assets you transfer into it will be protected from asset division.
As you navigate through a divorce, you should make sure that an estate planning attorney is on your side reviewing the settlement clauses. With their expertise, they will be able to see through loopholes and better determine what needs to be looked into. The impact of the separation on retirement accounts, protection from state and federal taxes, and ample provision for your heirs—all this can be ensured by a lawyer with estate planning experience.
