Divorce entails not only dividing a couple’s assets but undoing potentially complex estate planning entered into during the marriage. In the case of trusts, where asset titles are legally transferred to trustees, things can get even more complicated. That’s why it’s important to work with an experienced San Diego estate planning attorney to revise your will, trust and other documents as part of the divorce process.
A recent decision by a California Court of Appeals panel in San Jose demonstrates the problems that may arise from a divorce where the couple previously created a revocable living trust as part of their estate planning. Please note, this decision is only applicable to the parties in the case and will not be considered binding precedent in future cases. The description provided here is purely for informational purposes.
Dividing Trusts During a Divorce
Theodore and Janet Trebowski were married in the 1960s. In 1999 the couple created a revocable trust and transferred into it their home and other personal assets. The Trebowskis filed for divorce in April 2008. The court overseeing the divorce issued a standard order that enjoined either party from creating or modifying a “nonprobate transfer,” such as a trust, that would change the disposition of any marital property without the written consent of the other party.
In August 2008, while the Trebowskis continued to negotiate their divorce settlement, Janet Trebowski moved to buy a new house. She needed to access some of the trust assets in order to close escrow on the purchase. Theodore Trebowski wanted to wait until he could amend his estate planning to establish a new trust for himself. By September 2008, Janet Trebowski signed papers to transfer half of the 1999 trust’s securities and funds into a Theodore Trebowski’s new trust. Theodore Trebowski then signed new estate planning documents revoking the 1999 trust in its entirety.
Theodore Trebowski died six months later. In September 2009, Janet Trebowski filed a petition to declare her late husband’s prior revocation of the 1999 trust invalid. She claimed that she never received written notice of the revocation, and that since the couple was still married at the time of his death and the status of their marital home had yet to be adjudicated by the court,
the home remained in the 1999 trust. That would put the house under Janet Trebowski’s sole control as successor to the 1999 trust. Theodore Trebowski’s successor trustees to his 2008 trust, his son and sister, objected. They filed their own petition to establish their ownership of the home and other properties.
Court Looks to Actual Knowledge, Not Formal Service
Both the superior court and the court of appeals ruled in favor of the 2008 trust and against Janet Trebowski. The court found Theodore Trebowski properly revoked his interest in the 1999 trust. While he did not “file and serve” the revocation in formal terms, there was no dispute
that Janet Trebowski had “actual knowledge” of the revocation and made no objection while her husband was still alive. It was Janet Trebowski’s desire to access funds from the trust that prompted her late husband to complete his own estate planning and make the revocation in the first place. In addition, the court said Theodore Trebowski “delivered” his revocation to his wife in accordance with the written terms of the trust.
The court’s decision means Theodore Trebowski’s 2008 trust was lawfully entitled to half the sale proceeds of the marital home and other assets. Unfortunately, it took nearly four years of litigation to reach this conclusion. While Theodore Trebowski’s death in the middle of his divorce is an atypical complication, it’s important for anyone undergoing divorce to settle estate planning questions with their soon-to-be-ex-spouse. If you’re faced with revising an estate plan during or after divorce and need to speak with an experienced San Diego estate planning attorney, please contact the Law Office of Scott C. Soady at 1-858-618-5510.