Chapter 37 - § 37.4 • PLANNING FOR DIVORCE OF BENEFICIARIES

• Jurisdiction: Colorado

§ 37.4 • PLANNING FOR DIVORCE OF BENEFICIARIES

§ 37.4.1—Gifts to Adult Children

Parents often desire that gifts made to adult children not end up in the hands of the child's spouse, particularly in the event the child and his or her spouse divorce. If a gift is made outright to a child, only the appreciation in the value of the property after the date of the gift will be marital property subject to division in a marriage dissolution. C.R.S. § 14-10-113(4). However, if the child commingles the gift with marital property (i.e., deposits cash in a joint account with his or her spouse), conveys title to the gift to himself or herself and the spouse as joint tenants, or uses the gift to acquire property that is titled in both his or her name and the spouse's name, the entire gift will be deemed to be marital property. C.R.S. § 14-10-113(7)(a).¹⁰ If the child dies while married, the child's spouse has the right to receive a share of the child's intestate estate and to elect against the child's estate (unless waived). Thus, if the child dies while married, even if a divorce action is pending with his or her spouse, the spouse may obtain access to the gift to the deceased spouse from his or her parents.

A gift in trust to an adult child may be the best way to limit a child's spouse's access to gifts earmarked for a child and ensure that upon the child's death the property passes to someone other than the child's spouse. For this purpose, the trust corpus of a "discretionary trust" historically was not separate property of the beneficiary, and the appreciation of the trust corpus was not considered marital property under C.R.S. § 14-10-113. In re Marriage of Jones, 812 P.2d 1152 (Colo. 1991); In re Marriage of Rosenblum, 602 P.2d 892 (Colo. App. 1979). A beneficiary of a discretionary trust was considered only to have an expectancy that a trustee would make a payment and had no vested property right to receive payment from the trust. Further, such interest was neither separate property nor marital property because it was not considered property at all. Jones, 812 P.2d at 1158. A beneficiary's expectancy interest in a discretionary trust was considered an economic circumstance under C.R.S. § 14-10-113(1)(c) to be considered by the court when dividing marital property. This appeared to be true even if the beneficiary was also trustee of such discretionary trust. Rosenblum, 602 P.2d at 894; Jones, 812 P.2d 1152. These holdings, and others, were clarified and corrected...