What A Living Trust Is

• A living trust is nothing more than a trust you set up during your lifetime and becomes active now versus at the time of your death. In a trust, the trustee holds legal title to the property and controls it pursuant to the wishes of the person who set up the trust, called the "settlor." Although the trustee holds legal title, the beneficiary is the one who gets to enjoy the proceeds and the one for whose benefit the trust is managed. Since neither the trustee nor the beneficiary really owns the property in the commonly understood sense of the word, it can't be seized by the creditors of either. It also remains outside the estate when the settlor dies.
  
  

Living Trusts And Marital Property Division

• Nearly all family matters are governed by state domestic relations laws, which are as varied as the states themselves. In general, though, family courts only divide marital property in a divorce case. Marital property is typically defined as all property acquired by either spouse during marriage, with exceptions carved out for gift and inheritance property. One fairly universal requirement, though, is that marital property has to actually be property. With some trusts, the beneficiary holds only an expectation of receiving something in the future, akin to an inheritance. Many states have held that an expected future inheritance is not property.
  
  

Revocable Living Trusts

• A revocable living trust is one where the settlor can revoke the trust and get the trust property back into his own estate. In this situation, the beneficiary actually owns nothing, as his or her benefit can be cut off if the settlor so chooses. If the settlor is the one going through the divorce, her former spouse may be successful in getting his hands on at least some of the trust property, especially if the property in question was originally marital in nature. The likelihood of revocable trust party getting roped back into the marital estate is even greater when the settlor is also the trustee and beneficiary, which is allowed in some states.
  
  

Income Trusts And Divorce

• If the trust settlor was someone other than a party to the divorce--such as a party's parent or relative--the income from the trust won't be marital property. It might not even be property at all; with some trusts, the trustee has discretion in deciding whether to distribute income and how much income to distribute to the beneficiary. Any income from a trust received by a beneficiary will be relevant in setting child support and alimony.