So You Don’t Want Your Son-in-Law or Daugter-in-Law to Inherit?
Many of my clients love their son or daughter-in-law, but, almost without exception, if their children get divorced, then they do NOT want those ex-spouses to have access to any trust created for their children. In a recent case, Pfannenstiehl v. Pfannenstiehl, the court determined that an ex-spouse did have access to a trust created by the husband’s father. In a prior blog posting I discussed recent Florida law, the Berlinger case, where the spouse was also successful in accessing funds in a discretionary trust. The Pfannenstiehl points out other factors to consider.
In Pfannenstiehl, a Massachusetts court determined that a husband’s interest in a discretionary spendthrift trust created by the husband’s father should be deemed part of the marital estate for purposes of dividing assets in a divorce.
Father created a trust for the benefit of his son (the husband in this case) and son’s siblings. The trust contained a spendthrift provision which stated that “[n]either the principal nor income of any trust created hereunder shall be subject to alienation, ….. by the person for whom the same is intended, nor to …. garnishment or other seizure under any legal, equitable or other process.”
The trustees were husband’s twin brother and the family lawyer of over 40 years.
The trust provided that the trustee had discretion over the distributions to the beneficiaries (of which the husband was one) to provide for the “comfortable support, health , maintenance, welfare and education of each or all members….”
During the years husband and wife were married, the husband received trust distributions of approximately $800,000. After the filing for the divorce the trustee paid the husband no distributions.
Husband argued that the spendthrift provision prevented the trust principal and income from being part of the property considered in the divorce proceedings. The trial court and the appellate court determined that “mere statement of a spendthrift provision in a trust does not render distributions from a trust… immune to inclusion in the marital estate….”
The court also determined that the distribution standard, the discretion to give distributions for “comfortable support, health , maintenance, welfare and education” gave Husband a right to trust distributions.Thus, husband’s interest in the trust was subject to equitable distribution.
ADVICE: It appears that, under Florida law, based on the Berlinger v. Cassleberry case, a court would permit access to the trust under the same facts as Pfannenstiehl. Until Florida legislation clarifies the access to a purely discretionary trust for a spouse, if you want to protect your assets to the maximum extent possible, have independent trustees, include a spendthrift provision which applies to not only creditors but also to spouses and make the trust purely discretionary (not subject to the standard of “comfortable support, health , maintenance, welfare and education” or any similar standard). Further, if you want to be absolutely sure that a spouse can not have access to a trust, then set the trust up in a state that statutorily forbids a spouse from considering a third party trust an asset of the marital estate.
New Word of the Week: Spendthrift Clause.. A spendthrift is a person who spends money needlessly and lavishly. A spendthrift clause in a trust prevents a beneficiary’s creditor from attaching the beneficiary’s interest in the trust and prevents the beneficiary’s interest from being assigned. The spendthrift clause is to protect the spendthrift from him or herself.
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