Irrevocable Trust & Divorce
An irrevocable trust shields assets from estate and gift taxes as well as seizure by a grantor's creditors and, it allows beneficiaries to avoid the time and costs involved in probating a will. A divorce, whether the grantor's or the beneficiary's, may affect an irrevocable trust arrangement.
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How Trusts Work
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The grantor (or settlor) assigns money, real estate or other assets to a trust, which is overseen by a trustee. The trustee distributes the assets to the beneficiary(ies) according to the trust's terms. Whereas the grantor can change the terms of or even terminate a revocable trust, an irrevocable trust is unchangeable.
Grantor's Divorce
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Regarded as the property of a third party, an irrevocable trust is normally off limits in a grantor's divorce settlement. A court may nonetheless terminate, or at least alter, an irrevocable trust if it finds compelling reasons for doing so, such as if the trust violates the marital property rights of one of the spouses.
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Beneficiary's Divorce
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In a beneficiary's divorce settlement, a court may divide the rights -- called an interest -- to an irrevocable trust between the spouses. However, an interest classified under law as separate property -- property not belonging to the marital estate -- belongs exclusively to the beneficiary. Whether an interest in an irrevocable trust constitutes marital property or separate property varies among jurisdictions.
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