Does a Revocable Trust Create a “Property Interest” for the Contingent Beneficiaries?

Revocable trusts are meant to provide a high degree of flexibility when it comes to estate planning. That is to say, if you create a revocable trust, you are essentially free to amend, alter, or even revoke the trust at any time during your lifetime. The trust itself does not become irrevocable until your death. So while you are still living, you can make as many changes to the trust as you wish.

Washington Court Rejects Ex-Wife’s Attempt to Reopen Divorce Settlement

But what does this mean for the persons named as contingent beneficiaries of your trust? Do they have any property rights in the trust until it becomes irrevocable after your death? And how does that affect any legal proceedings involving such contingent beneficiaries?

A recent unpublished decision from the Washington Court of Appeals, In the Matter of Cooney and Brooks, offers a real-world examination of these questions. This case involved a divorce where the ex-husband was a contingent beneficiary of his grandmother’s trust. The ex-wife alleged that the ex-husband misrepresented his assets during the negotiation of their divorce settlement because he neglected to disclose that contingent interest.

The parties married in 1991 and separated in 2016. In 2020, the ex-husband filed for divorce in Washington. During pre-trial discovery, the ex-wife requested the ex-husband turn over documents related to any trust that he established or was a beneficiary of. At a subsequent deposition, the ex-husband said he was the trustee for his grandmother’s revocable trust. The ex-wife demanded a copy of the grandmother’s trust. But just before a court-imposed deadline to provide those documents, the parties settled and signed a divorce settlement. The court then approved the final divorce.

About a year later, the ex-wife filed a motion to vacate the final divorce decree, alleging the ex-husband committed fraud. Specifically, she alleged that the ex-husband failed to disclose he was the “sole beneficiary” of the grandmother’s trust during the settlement negotiations. She said she would not have agreed to the terms of the settlement had she known this information.

The trial court found the ex-husband committed no fraud and denied the ex-wife’s motion. The Court of Appeals upheld that ruling. The appellate court said that the terms of the grandmother’s trust did not create a “property interest” that the ex-husband needed to disclose during his divorce settlement talks. The trust was revocable during the grandmother’s lifetime. The ex-husband would only receive assets from the trust upon the death of both his grandmother and her partner. And if the ex-husband died before them, his potential interest would have passed to someone else.

The Court of Appeals explained that since the grandmother could effectively abolish the ex-husband’s status as a trust beneficiary at any point before her death, the ex-husband’s interest in the trust was “merely potential,” and thus he did not cheat his ex-wife by failing to disclose it. (The court also pointed out the ex-wife, an attorney herself, knowingly signed a settlement agreement where she explicitly waived the right to further discovery.)

Contact Moulton Law Offices Today

If you need legal advice regarding a revocable living trust and how it may affect both you and your family in the future, contact the Spokane revocable living trust lawyers at Moulton Law Offices, P.S., today to schedule a consultation. We serve clients throughout the Spokane Valley, Kennewick, and Yakima.

Source:

scholar.google.com/scholar_case?case=3554339896635355392