How a Divorce Can Affect Your Estate Plan, Part 2: Trusts

 Posted on May 24,2018 in Estate Planning

In Part 1 of this series of posts, we talked at length about how a divorce could impact the provisions and enforceability of a person’s will. A will, in many cases, is just one component of a comprehensive estate plan, which means that there are other estate planning instruments that could be affected by a divorce. For example, you may have established one or more trusts to protect and transfer your property to your chosen beneficiaries. The types of trusts that you have set up will determine how they are affected by your divorce.

Revocable Trusts

Illinois law provides that any provisions, appointments, or nominations made regarding a person’s spouse in the person’s will are automatically revoked when a judgment of divorce is issued. The law is similar in regard to trusts but with some important differences. The differences are caused by the nature of certain kinds of trusts and the rules that apply to them.

A living trust is one of the most common types of trusts used in estate planning. Also called a “grantor trust” or an “inter-vivos trust,” a living trust goes into effect during the creator’s lifetime and can be used to hold property that will later be distributed to named beneficiaries. In a large majority of situations, the terms of a living trust can be modified or revoked by the creator—also known as the “settlor”—for the rest of his or her life. Such a trust, therefore, is called a “revocable” trust.

According to the Illinois Trusts and Dissolutions of Marriage Act, a judgment of divorce “revokes every provision that is revocable by the settlor pertaining to the settlor’s former spouse” in a trust that was set up prior to the divorce. This means that if you named your spouse as a successor trustee or a beneficiary of your revocable living trust, those provisions will be invalidated when your divorce finalizes, unless your trust agreement specifically says otherwise.

Irrevocable Trusts

Irrevocable trusts are less common than revocable trusts, but you may still have one or more as part of your estate plan. Credit-shelter trusts, generation-skipping trusts, and charitable remainder trusts are examples of trusts that cannot be amended once they are established. As a result, a divorce will have no effect on the terms of an irrevocable trust.

It may be possible, however, to draft an irrevocable trust in such a way that it takes the possibility of a divorce into account. For example, your irrevocable trust could specify that your spouse should be removed as a beneficiary in the event of a divorce.

Be Vigilant

It is important to keep in mind that only a finalized divorce will trigger automatic or specified revocations. This means that the current terms of your trusts remain in effect while your divorce is pending. An estate planning attorney can help you determine whether to amend your trusts before your divorce is finalized or to wait.

At A. Traub & Associates, our experienced Lombard estate planning attorneys are also well-versed in divorce and family law, so we understand how one can affect the other. If you have questions, call 630-426-0196 to get the answers you need.

Sources:

https://www.thebalance.com/estate-planning-documents-to-update-for-divorce-3993981

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2123&ChapterID=61