Interplay Between Marriage and Trusts in California
In the Golden State, spouses have the authority to name each other as beneficiaries, serve as co-trustees, and maintain control over trust assets. These interactions are shaped by the trust's categorization as marital or separate property.
One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
It's crucial to review the trust document to understand its stipulations. Beneficiaries: The remarriage of a surviving spouse does not automatically alter the beneficiaries of the trust. However, the new spouse might become a relevant party, especially if the surviving parent wishes to provide for them.
Establishing and maintaining a trust can be complex and expensive. Trusts require legal expertise to draft, and ongoing management by a trustee may involve administrative fees. Additionally, some trusts require regular tax filings, adding to the overall cost.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
In other words, regardless of the existence of a living trust, so long as it is revocable, a divorce in California will proceed pretty much as any other divorce, but the trust may need to be dissolved and assets removed from it. In the case of an irrevocable trust, read on. That's an entirely different issue.
Anytime people enter into a second (or subsequent) marriage, or any late-in-life marriage, we strongly recommend having your assets in a trust prior to marriage to protect them from going to your future spouse if you don't want them to AND having a prenup for added protection, to protection non-trust assets from going ...
Typically, when a married couple utilizes a Revocable Living Trust-based estate plan, each spouse creates and funds his or her own separate Revocable Living Trust. This results in two trusts. However, in the right circumstances, a married couple may be better served by creating a single Joint Trust.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
There is no minimum
You can create a trust with any amount of assets, as long as they have some value and can be transferred to the trust. However, just because you can doesn't necessarily mean you should. Trusts can be complicated.
Trusts are an excellent estate planning tool for Californians as they provide asset protection. Although someone generally can't bring a lawsuit against a trust, filing a claim against the trustee can occur.
Keep and follow through on commitments you make. Be consistent. Listen empathetically, be present with your partner, and ask questions to better understand them and your relationship with them. Continually deepen your own self-awareness so that you can share your most honest thoughts, emotions, needs, and requests.
The surviving spouse has full control over their survivor's trust, but may have limited control over the deceased spouse's accounts and property that make up the decedent's trust.
During a divorce, the existence of trusts can create issues for equitable distribution purposes. In other words, one spouse may be using trusts to hide marital assets. If the other spouse has no idea these trusts exist, he or she is unlikely to instigate an investigation, known as asset tracing.
Under California probate law, a marriage automatically revokes (invalidates) any pre-existing will or trust regarding the new spouse's inheritance rights, unless the documents provide for a new spouse or clearly indicate that the new spouse will receive nothing. This is called revocation by operation of law.
Some couples may find that it makes sense to set up an account for joint expenses and keep their other assets separate. Others combine all their cash, debts and expenses. Still others might choose not to have any shared accounts, and simply split up who pays which bill.
Death of Spouse. The trust may stipulate that, upon the death of the surviving spouse, the remainder of the trust will be distributed to the testator's children from a previous marriage or to children from both marriages.
Separate property generally cannot be touched in a divorce., but there may be times when separate property turns into marital property, making it available for distribution.
If the trust was established during the marriage, then it is marital property, and you stand a strong chance of getting access to those funds. If the trust was established before the marriage, it is separate property, and you will find it much more difficult to access this asset.
An irrevocable trust is created to reduce taxes and avoid probate. When you set up an irrevocable trust, you lose all ownership incidents, but this also takes the assets in the Trust off your taxable estate. The income produced by investments in an irrevocable trust is not subject to personal income tax.
Who can void a trust? Under California Probate Code §17200, a trustee or beneficiary of a trust may petition the court to determine the existence of the trust. This means that any potential, current, or previous beneficiary can file a petition to void a trust, as can a trustee or co-trustee.
Rich people frequently place their homes and other financial assets in trusts to reduce taxes and give their wealth to their beneficiaries. They may also do this to protect their property from divorce proceedings and frivolous lawsuits.
Orman was quick to defend living revocable trusts in her response to the caller. “There is no downside of having a living revocable trust. There are many, many upsides to it,” she said. “You say you have a power of attorney that allows your beneficiaries, if you become incapacitated, to buy or sell real estate.