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Trusts as a Property Interest In Dissolution

Property division is an important aspect of dissolution. Property comes in many forms and one sometimes overlooked form is a trust with one spouse as a beneficiary. Although trusts in the name of one party are generally separate property, there are times where trusts are marital property. Generally, it depends on the characteristics of the trust and whether an interest is vested and enforceable. In Colorado, if a spouse holds a remainder interest in an irrevocable trust, it is generally considered to be marital property. That is because such an arrangement gives the spouse a fixed and enforceable right to future enjoyment.

In contrast, where the trust does not create a contractual right that would allow the beneficiary to force the trustee to distribute all or part of the trust, the interest is discretionary and not considered to be marital property. As with other property a court must determine whether it is marital or separate and can only distribute marital property. However, a court can consider, though not divide, one spouse's separate property for purposes of equitable distribution.

Mandatory Income Interests Without Vested Remainders

A discretionary interest to invade the trust corpus without a remainder interest is not considered to be a property right. That is because the interest is only anticipatory and not enforceable. Along the same lines, a discretionary right to income is not a property right. An interest in future discretionary income distributions becomes a separate property interest when income distributions are actually received.

Vested Remainder Interests

In Colorado, a remainder interest in an irrevocable trust represents a present fixed right to future benefit that creates a vested property interest in the trust, even if the interest can be divested. This kind of interest could be completely divested upon the happening of some future event, though still may be considered marital.

The Beneficiary As Trustee

If the beneficiary is a co-trustee, courts have determined that such a trustee will not less likely to use his or her discretion to withhold distribution than in the situation where the beneficiary and Trustee are two different people. In a discretionary trust, a beneficiary who is not a Trustee can not force distribution. However, if the beneficiary and Trustee are one and the same person, the beneficiary often has complete or substantial discretion to distribute absent specific conditions on distribution.

Legal Review

There are many different kinds of trusts and an analysis of whether a trust is marital property or not is fact specific. When one spouse has a trust, couples often find it helpful to obtain a formal legal opinion as to whether the trust is separate or marital property.

Dissolution is often a difficult process, however you can turn change into a new opportunity. At Janko Law and Mediation, LLC we work with you to define and meet your goals and priorities. We are committed to pursuing settlement to preserve family relations to the maximum extent possible, however can also zealously represent your interests in contested litigation. Give us a call for a complimentary case assessment at 303-210-4204, or fill out our confidential online intake form.

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