Creating a trust as a couple is a common estate planning strategy, offering benefits like probate avoidance, asset protection, and streamlined management of shared property. However, life is rarely static, and circumstances change. The question of whether a jointly created trust can be “split” later—effectively dividing it into two separate trusts—is a frequent one for estate planning attorneys like Steve Bliss in San Diego. The answer isn’t a simple yes or no; it depends heavily on the trust’s original terms and the couple’s intentions. Trusts are legally binding documents, so modifications require careful consideration and adherence to specific legal procedures. Roughly 65% of couples initially create a single revocable trust, later needing to adjust it due to unforeseen life changes according to a recent study by the American Academy of Estate Planning Attorneys.
What happens if we get divorced and have a joint trust?
Divorce introduces significant complexity. A trust created jointly is typically considered marital property, meaning it’s subject to division in a divorce proceeding. The terms of the trust will dictate how assets are divided, but a court can also order a modification or even termination of the trust to equitably distribute property. Often, this involves dividing the trust into two separate, independent trusts, one for each spouse. The process can be contentious, especially if there are disagreements about asset valuation or the trust’s interpretation. It’s vital to address the trust within the divorce settlement to avoid future disputes. One client, a woman named Eleanor, came to Steve Bliss after a particularly difficult separation, lamenting that her ex-husband had drained the trust account before the divorce was finalized, leaving her with nothing. Had they addressed the trust’s assets during the initial proceedings, she could have protected her share.
Is a revocable trust always easier to split than an irrevocable one?
Generally, a revocable trust offers more flexibility than an irrevocable one. Revocable trusts, as the name suggests, can be amended or terminated by the grantors (the couple in this case) during their lifetimes. Splitting a revocable trust often involves drafting an amendment that restates the trust terms, creating separate shares for each spouse, and potentially appointing separate trustees. Irrevocable trusts, on the other hand, are much more rigid. Once established, they typically cannot be amended or terminated without court approval, which is often difficult to obtain. Splitting an irrevocable trust usually requires a court order and may have significant tax implications. Creating an irrevocable trust generally provides tax advantages and asset protection, but it does so at the cost of flexibility.
Can we change the trust document if we both agree?
If a couple both agree on the division of assets and the restructuring of the trust, it’s usually straightforward to amend the document. This requires a formal amendment drafted by an attorney and signed by both grantors. The amendment should clearly outline the division of assets, the appointment of separate trustees (if desired), and any changes to the trust’s administrative provisions. It’s critical that the amendment is properly drafted to avoid ambiguity and ensure that it reflects the couple’s intentions accurately. Many clients underestimate the importance of detailed documentation, leading to confusion and disputes later on. A properly prepared amendment is a safeguard against future misunderstandings.
What if one spouse wants to keep the trust intact, and the other wants to split it?
This situation is considerably more complex and often requires mediation or litigation. If the couple cannot reach an agreement, a court will likely intervene to determine how to divide the trust assets. The court will consider various factors, including the terms of the trust, the contributions of each spouse to the trust, and the overall fairness of the division. This process can be time-consuming and expensive, and the outcome may not be what either spouse initially desired. One couple, the Harrisons, initially created a trust to manage their shared business and personal assets, but after years, their relationship soured. The husband wanted to keep the trust intact for the business, while the wife wanted a clean break with separate assets. Steve Bliss helped them navigate the complex legal landscape and ultimately reached a settlement that satisfied both parties, preventing a costly and protracted court battle.
Does splitting a trust trigger any tax implications?
Splitting a trust can potentially trigger various tax consequences. Depending on how the split is structured, it could be considered a gift, which may be subject to gift tax. It could also trigger capital gains taxes if assets are transferred or sold as part of the split. It is crucial to consult with a tax professional to understand the tax implications of any trust division and to structure the split in a tax-efficient manner. The current federal gift and estate tax exemption is quite high (over $13.61 million in 2024), but careful planning is still essential to minimize tax liabilities. Many clients are surprised by the complexities of estate and gift taxes, highlighting the importance of expert guidance.
What role does the trustee play in a trust split?
The trustee plays a vital role in any trust split. They are responsible for implementing the terms of the trust, whether those terms are outlined in the original trust document or in a subsequent amendment. This includes identifying and valuing assets, transferring ownership, and distributing assets according to the agreed-upon division. The trustee must act impartially and in the best interests of both beneficiaries. If the trustee is also a spouse involved in the split, it’s often advisable to appoint a neutral third-party trustee to avoid conflicts of interest. Having a qualified and experienced trustee can streamline the process and ensure that everything is handled properly.
Can we avoid splitting the trust altogether if we anticipate future disagreements?
Yes, proactive planning can often avoid the need to split a trust later on. One strategy is to create separate subtrusts within the original trust document, with each spouse having control over their respective share. This allows for a degree of separation while still maintaining the benefits of a single trust. Another approach is to include clear provisions for dispute resolution within the trust document, such as mediation or arbitration. By addressing potential disagreements upfront, couples can minimize the risk of costly and time-consuming legal battles. Steve Bliss often encourages clients to consider these options during the initial estate planning process, emphasizing the importance of anticipating future challenges.
Ultimately, the ability to split a trust depends on a variety of factors, including the trust’s terms, the couple’s agreement, and applicable state law. While it is possible to split a trust, it’s often a complex process that requires careful planning and legal expertise. Working with an experienced estate planning attorney like Steve Bliss in San Diego can help couples navigate these challenges and ensure that their wishes are carried out effectively. Remember, proactive planning and clear communication are key to a successful outcome, avoiding disputes and safeguarding your future.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Probate Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
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Feel free to ask Attorney Steve Bliss about: “Can a trust protect my beneficiaries from divorce?” or “How does the court determine who inherits if there is no will?” and even “Can I create a joint trust with my spouse?” Or any other related questions that you may have about Probate or my trust law practice.