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Why it is important when thinking about divorce or legal separation to also review your estate planning and estate planning documents

At Trugman Law Group, APC we always caution our family law clients to pay serious attention to their estate planning documents before starting or continuing with any divorce or legal separation proceedings.

Even before the Covid-19 shutdown of normal court proceedings, and now with the restrictions it can take many months, sometimes into years to proceed through to the end.

The Judicial Council of California has adopted for mandatory use Judgment form FL-180 which provides in part: ADissolution or Legal Separation may automatically cancel the right of a spouse or domestic partner under the spouse=s or domestic partner=s will, trust, retirement plan, power of attorney, pay-on-death bank account, transfer-on-death vehicle registration, rights of a spouse or domestic partner as beneficiary of the other spouse=s or domestic partneres life insurance policy.

In addition, it is important to review who is the trustee named in any trust retirement plan, etc. and consider if a potential conflict of interest may exist or potentially arise as a result of a dissolution or legal separation being planned or proceeding.

The United States Supreme Court in its recent ruling (6-1-20) Thole et. al. v. U.S. Bank, N.A., et. al. declared Ain a defined-contribution plan, such as a 401(K) plan, the retirees Abenefits are typically tied to the value of their accounts, and the benefits can turn on the plan fiduciaries= particular investment decisions.@  AIn the private trust context, the value of the trust property and the ultimate amount of money received by the beneficiaries will typically depend on how well the trust is managed so every penny of gain or loss is at the beneficiaries= risk.@  AOn top of all that, fiduciaries (including trustees who are fiduciaries) can sue other fiduciaries – and they would have good reason to sue if…one fiduciary were using the plan=s assets= as a personal piggybank.

Parties to a dissolution or legal separation are cautioned to be aware of the relationship between a beneficiary and a trustee, or, any conflicting interests between a beneficiary and a trustee.  It is not uncommon for one spouse or domestic partner to name the other as a trustee of a trust, a retirement plan, etc.  Spouses hold an unusual position of trust and confidence between them creating the fiduciary relationship.  However, when a dissolution or legal separation action is contemplated, or filed, the relationship of trust and confidence is eroded or terminated.  Prior to that time parties act as they may, ofttimes giving little thought to the concept of good faith and fair dealing.  How often in family law we hear a party say, my spouse just asked me to sign and to Atrust@ them.  Family Code ‘721 ATransactions with each other and third parties; Fiduciary relationship of Spouses@ Aimposes a duty of the highest good faith and fair dealings on each spouse and neither should take any unfair advantage of the other.@  Family Code ‘1100 (e) provides AEach spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721 until such time as the asset and liabilities have been divided by the parties or by a court.

Contributions to establish or contribute to a trust or retirement account if made during marriage are presumed to be community property (Family Code ‘760) and AUnless the trust instrument or instruments of transfer expressly provides otherwise, the community property that is transferred in trust remains community property during the marriage, regardless of the identity of the trustee, if the trust…provides that the trust is revocable… and the power, if any, to modify the trust…may be exercised only with the joinder or consent of both spouses.

The Summons in a Family Law Action contains a temporary restraining order restraining both parties Afrom creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or an Order of Court.@  (Family Code ‘2040) A(b) This section does not restrain any of the following:

A(2) Revocation of a nonprobated transfer, including a revocable trust…

A(3) Elimination of a right of survivorship to property…

A4) Creation of an unfunded revocable or irrevocable trust.

Consequently, the legal effect and financial implications in estate planning decisions as they effect a dissolution or Legal Separation issues of the characterization allocation, and the management and control of assets and debts is significant and must be carefully reviewed.

Divorce, legal separation, and estate planning can be complicated and confusing.  The idea is to get in front of the issues and prevent surprises.  If you have any questions on how to best efficiently and cost effectively to handle your case please contact us for a consultation.