Irrevocable Trusts

When there is a Trust that has been established as part of Estate Planning between a husband and a wife, that Trust should be considered in the course of a divorce, and while you may not “own’ the Trust, the funds within the Trust may be a ‘marital asset’ that needs to be addressed.

Consider the family that had established a Life Insurance Trust several years ago. The husband created the trust to provide for his wife and his children should he pass away. There was about $5 million of life insurance death benefit in the trust and about $250,000 of cash value within the three life insurance policies that were owned by the Trust. Neither the Husband or the Wife ever thought about the Trust, as a matter of fact and neither one of them brought in a document related to the Trust; it was only through the review of the life insurance policies that the trust was discovered. Once found, both spouses were in agreement that they wanted the Trust to stay intact especially for the kids.

“The Grantor’s Spouse”

Often, an irrevocable trust lists the beneficiary as the ‘Grantor’s Spouse’, whomever that may be at the time of the Grantor’s death. A review of their Trust document showed this was the case for their Trust – and the husband was intent on remarrying!

Through discussion and a mediated negotiation, we were able to restructure the $250,000 of cash value for the children’s education, but if this issue had not been caught and addressed prior to the divorce, both Mom and Dad could have made a quarter of a million dollar mistake.

In this case, when they divorce and he remarried, the new spouse would have become the primary beneficiary. There was a good chance their children might not receive a thing.

Add a Comment

(Enter the numbers shown in the above image)