Protecting trust income in a divorce: advance planning is key

Say that you’re the only grandchild of grandparents who absolutely dote on you and have always contributed to your life in meaningful ways. They were around when you were a kid, helped finance your college studies, beamed at your wedding and now lavish attention on your kids, as well.

Let’s take the hypothetical one step further. Grandpa and grandma long ago made the decision to provide for you in a lasting manner by executing a third-party trust pursuant to which they, as grantors, provide you with regular income. The intent of that trust is that such income will be dispersed to you throughout your life.

A recent Forbes article discussing third-party trusts and income provisions sketches out that approximate scenario, and additionally asks this question: What happens if your are now divorcing your spouse and, during the dissolution process, he or she makes a claim on that income?

Do you need to share it?

As the above-cited article states, “Legal cases examining this kind of question are frequently appealed to higher courts.”

And that can be both expensive and portend an uncertain outcome.

The Forbes author notes that “careful advance planning” can go far toward reducing trust-related uncertainties in the event of a challenge, with the focused and proactive work of a proven estate planning attorney well experienced in drafting trusts helping to ensure that a grantor’s intentions are fully carried out.

Setting forth and carefully detailing all material matters relating to intent can be critically important to promote a California trust creator’s objectives, including, of course, undisturbed income distributions to a beneficiary.

“Make sure you work with an experienced trust attorney,” notes the Forbes article, “and have them be as specific as possible in their language.”

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