Attorney Thomas B. Burton answers the following question: "I Am Trust Beneficiary Going Through Divorce -- Can They Attack Trust?"
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Welcome back!
I'm Attorney Thomas Burton and today on our Question & Answer Series, I'm answering another Real Viewer Question from the State of Wisconsin.
So today's question comes from Kenosha, Wisconsin and it is the following: "I am a trust beneficiary, trustor deceased, trustor is the person who created the trust. Trust was established prior to marriage, pending divorce now, can they attack the trust? I became a beneficiary 10 years before I met my husband. Husband did not make a contribution to the trust."
Okay, so this is a very good question and it illustrates an important protection you can leave to your children or heirs, if you set up a trust properly and that's something we call "Spendthrift Provision". You can put spendthrift provisions in a trust and they can protect a beneficiary from creditors and we often say creditors or divorce, the goal is to keep those assets out of the person's individual name.
So because this trust was created before your marriage, if it has the right spendthrift creditor protections inside of it, it's likely it can protect the assets for you from the divorce. However, once income or assets come out of the trust to you, then it's less likely you can protect them from divorce. So you need to discuss this specifically with your divorce attorney and possibly an attorney who, if the divorce attorney isn't well versed in trust, someone who is but in general, as long as the assets, the principal and the money stays in the trust, it's not your asset. It's held for your benefit in the name of the trust.
So some of this would depend on I would need to see the exact language of the trust but the key is that's why trust planning is important. It's key to keep the assets inside the trust with the beneficiary named, who can use the benefit of those assets. Now, it may depend too on who the trustee is, in this case and what it directs them to do if a beneficiary is going through a divorce. The issue I see people run into is in Wisconsin, even inherited property, even if you're married, is considered individual property. If it's an inheritance from a relative, however, where I see many couples fail is, they'll, they get the inheritance, let's say, $50,000 from grandma and they dump it into their joint checking account and it's sitting in the joint checking account and then they use some of the money to pay the mortgage on their jointly titled house and they do some improvements to the house and pay the bills. It's at risk of what we call 'Co-mingling' and if you co-mingle the assets, the general presumption in Wisconsin is that all property is marital property, if they can't trace it. So my advice to people receiving an inheritance, if it's not properly set up in a trust to protect it for you and you are concerned about your spouse and maybe, you think there's a divorce on the horizon or you don't even know but you're just concerned, is put it in a separate or even if you're not concerned, I'm just saying, you could put it in a separate savings account as soon as you get the inheritance and title it solely in your name and say grandma's inheritance. So that's your best option until you figure things out, if you get an inheritance suddenly. Better is to do the trust planning like what looks like is in this situation but again remember, if you mix assets and co-mingle them, the judge, not all the time but likely is going to, if they can't trace it, they're going to apply the presumption of marital property and if you don't have a marital property agreement in place that lays out what happens, opting out of the marital property laws in Wisconsin, then that's what happens, the default rules apply. So be careful of that mixing issue.
Now, if you're planning to go through the divorce soon, "pending divorce now", I would for sure talk to the trustee of the trust about what's going on and make them aware of your pending divorce. I don't know if that means you have filed or gonna file soon and what you think the ex-spouse may do about this trust. Make them as aware as possible, so they can examine the trust language and see what options they have, hopefully those spendthrift protections are in there and they can keep the principal safe for you. If you have some access to the income, it will also depend on what the trust says about if there's a mandatory income payment each month or if they can possibly suspend those payments during the divorce, things like that.
So there's a lot of details here, you should discuss with the trustee, your divorce attorney and a qualified estate planning and trust attorney but in general, the good news is, the person who passed away left it to you in trust and hopefully they set it up to protect it for you in the event of a divorce like this. So you're doing the right thing to ask the question but I would consult in private about the details of this with your own attorney.
So great question and thank you for asking. Thank you to the viewers for watching and if you have a question like this in the future, feel free to submit it for consideration for the channel because the goal of these videos is to provide education to others, who may be going through a similar situation and if this video has been helpful to you, please consider giving it a LIKE, so that others can see and benefit from this information as well.
Thanks for watching and we'll see you next time.
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