TRUST LITIGATION FOR DIVORCE IN COLORADO

A trust is a legal vehicle that is controlled by a third party, called a trustee, intended to hold assets for beneficiaries. A beneficiary may be any person or legal entity that an individual names in a life insurance policy to receive the death benefit. So when the benefactor passes away, their beneficiary will receive the payment for the amount of their life insurance policy.

The two most common types of trust are revocable and irrevocable trusts. We will break those down below.

Define Revocable

A revocable trust is when the grantor, meaning the person who originated it, is in charge of the trust and controls it for the remainder of their life. This means they are able to alter or cancel the trust at any time. In a revocable trust, any earned income is distributed directly to the grantor. Only when he or she dies does the money and/or property get transferred to the beneficiary. 

Define Irrevocable

An irrevocable trust is when the grantor puts their assets into the trust, but gives up control of those items as soon as the trust is drafted. The person they assign to be the beneficiary of their trust will be in control of their assets for however long it is intended to last. This means the grantor cannot modify, cancel, or amend the trust without permission from the named beneficiary or beneficiaries. These types of trusts offer tax-shelter benefits, whereas revocable trusts don’t. 

Often in a trust, the original grantor may choose their current spouse as the beneficiary. It is common for grantors to assign half or all of their assets to their spouse at the time the trust is drafted. So what happens if the two divorce? 

In the aspect of a divorce, a court must determine if interest in a trust falls under a “property interest” or not. In Colorado, an interest in a revocable trust does not entail property interest because a third party has the ability to alter the trust or the beneficiary at any time. Instead, a trust asset is considered property interest if the beneficiary has a right to receive benefits from the trust. This generally occurs in an irrevocable trust. 

Once the court determines whether a party’s interest is property interest or not, they must then decide if it is marital or separate property. If marital, the value of the party’s interest will be included in property division. If separate, the court must decide if the value of the trust increased during the marriage. If so, the various assets of the trust must be quantified and divided in value. 

As with most things concerning divorce, trust litigation can be tricky. There are many factors that weigh on what can and will be divided. This is especially so in out of state trust litigation for divorce. Different states have different laws for how trusts may be handled in the event of a divorce, so it is best to have a family lawyer who is equipped to handle out of state trust litigation.

Trust Litigation

It is common in trust litigation that multiple petitions or claims be brought forward in order for a civil challenge to ensue. The complaints must be based on separate but related claims.

Types of valid claims aside from divorce that may be made to challenge the trust often involve the following:

• Financial Elder Abuse
• Undue Influence Claims
• Creditor’s Claims
• Capacity Issues
• Probate

These are all reasons why a claim might be brought forward that requires trust litigation. 

Another valid claim may arise when the individual who created or drafted the trust did not have the authority to do so. If someone lacked legal authority to create the trust, the entire document may lose validity. In addition to lacking legal authority, a person might also lack the proper mental capacity (i.e. capacity issues) to carry out such an important task.

Another reason someone might challenge the validity of a trust is if the creator of said trust was being coerced at the time. For example, the person creating a trust was influenced by another person to distribute their assets a certain way (i.e. undue influence). This denies the maker the free will in which the document relies on and which the creator is entitled to. Often, this might also be a case of financial elder abuse. 

In other cases, documents may be forged. This leaves room for not only a legal challenge, but a criminal charge as well. In addition, fiduciaries have a legal responsibility to follow the instructions of the trust as it was laid out. Failing to do so could also result in a civil challenge.

A trust litigation attorney is needed when disputes arise in the distribution of property or an estate. A trust is often drafted in a way that leaves specific instructions for how things ought to be handled. However, it does not often take into account what happens in a divorce like a prenup or postnup would. When a trust is drafted with a spouse as a beneficiary, things can get complicated if the couple ends their marriage. The success of your trust litigation depends on the attorney conducting the litigation and the experience they have in the subject matter.