Assets in a Discretionary Trust- Protected or Not? That is the question!

Assume you have a “wayward” child, Sam and you want to create a trust for him so that after your death you can be certain that no matter what he does i.e., , marry a gold digger, go off on a drug tangent, etc, etc… you get the picture, he will have money to live. You can create a fully discretionary trust for him. A discretionary trust just means that the trustee of that trust has full discretion to distribute to him or not. It is up to the trustee to make that decision. There are tax issues to review but that is not the focus of these comments.

What if Sam gets married and has children. Of course there is a divorce (why else would I bring this up?). Spouse has an order for alimony. There has been much confusion in Florida as to whether a fully discretionary trust would be subject to the claims of alimony. Well at least in the 2nd circuit (our circuit) that issue was decided.

In Berlinger v. Casselberry , the court allowed a continuing writ of garnishment against distributions made to or for the benefit of a beneficiary (in our case, Sam). Thus, if the trustee made distributions to or for the benefit of Sam, such distributions would have to pay Sam’s alimony obligations. Of course, the trustee could choose to make NO distributions but eventually Sam would need the distributions to live. The result is that the alimony obligations will be paid first before Sam could use the distributions for living expenses.

If protection from alimony obligations is important to you, then there are other states which have legislation which specifically prohibit invasion of the trust or a garnishment of distributions from the trust for alimony obligations. While you may not agree with this policy, you and your clients need to be aware of the options. The Real Property Probate and Trust Law Committee of the Florida Bar will be reviewing this case and we will see if we will change the policy of Berlinger or if we will keep the policy enunciated in Berlinger.

GENEROSITY IS A KEY OF HAPPINESS.. REACH OUT AND HELP SOMEONE TODAY!

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